Security Bank Audited Financial Statements 2017

Security Bank Corporation and
Subsidiaries
Financial Statements
December 31, 2017 and 2016
and for the Years Ended December 31, 2017,
2016 and 2015
and
Independent Auditor’s Report

SyCip Gorres Velayo & Co. Tel: (632) 891 0307 BOA/PRC Reg. No. 0001,
6760 Ayala Avenue Fax: (632) 819 0872 December 14, 2015, valid until December 31, 2018
1226 Makati City ey.com/ph SEC Accreditation No. 0012-FR-4 (Group A),
Philippines November 10, 2015, valid until November 9, 2018
INDEPENDENT AUDITOR’S REPORT
The Stockholders and the Board of Directors

Security Bank Corporation
Opinion
We have audited the consolidated financial statements of Security Bank Corporation and its subsidiaries
(the Group) and the parent company financial statements of Security Bank Corporation (the Parent
Company), which comprise the consolidated and parent company statements of financial position as at
December 31, 2017 and 2016, and the consolidated and parent company statements of income,
consolidated and parent company statements of comprehensive income, consolidated and parent company
statements of changes in equity and consolidated and parent company statements of cash flows for each of
the three years in the period ended December 31, 2017, and notes to the consolidated and parent company
financial statements, including a summary of significant accounting policies.
In our opinion, the accompanying consolidated and parent company financial statements present fairly, in
all material respects, the financial position of the Group and the Parent Company as at December 31, 2017
and 2016, and their financial performance and their cash flows for each of the three years in the period
ended December 31, 2017 in accordance with Philippine Financial Reporting Standards (PFRS).
Basis for Opinion
We conducted our audits in accordance with Philippine Standards on Auditing (PSAs). Our
responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit
of the Consolidated and Parent Company Financial Statements section of our report. We are independent
of the Group and the Parent Company in accordance with the Code of Ethics for Professional Accountants
in the Philippines (the Code of Ethics) together with the ethical requirements that are relevant to our audit
of the consolidated and parent company financial statements in the Philippines, and we have fulfilled our
other ethical responsibilities in accordance with the Code of Ethics. We believe that the audit evidence
we have obtained is sufficient and appropriate to provide a basis for our opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our
audit of the consolidated and parent company financial statements of the current period. These matters
were addressed in the context of our audit of the consolidated and parent company financial statements as
a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
For each matter below, our description of how our audit addressed the matter is provided in that context.
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A member firm of Ernst & Young Global Limited
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We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the
Consolidated and Parent Company Financial Statements section of our report, including in relation to
these matters. Accordingly, our audit included the performance of procedures designed to respond to our
assessment of the risks of material misstatement of the consolidated and parent company financial
statements. The results of our audit procedures, including the procedures performed to address the
matters below, provide the basis for our audit opinion on the accompanying consolidated and parent
company financial statements.
Applicable to the Audit of the Consolidated and Parent Company Financial Statements
Adequacy of Allowance for Credit Losses on Loans and Receivables

The Group’s loans and receivables consist of corporate, middle market and consumer loans. The loans
and receivables are significant as they represent 48.9% and 48.6% of the total assets of the Group and the
Parent Company, respectively. The related allowance for credit losses on loans and receivables in the
consolidated and parent company financial statements amounted to P =3.9 billion and =
P3.8 billion,
respectively. The Group determines the allowance for credit losses on an individual basis for individually
significant loans and receivables, and collectively for loans and receivables that are not individually
significant and those individually significant loans and receivables but with no specific allowance for
credit losses. The determination of the allowance for credit losses is a key area of judgment as it requires
the management to make assumptions about various factors that include the financial condition of the
counterparty, estimated future cash flows, probability of collections and estimated net realizable value of
the collateral. The use of different assumptions and provisioning methodologies could produce
significantly different estimates of allowance for credit losses.
The disclosures in relation to the allowance for credit losses are included in Notes 3 and 12 to the
financial statements.
Audit Response
For allowance for credit losses calculated on an individual basis, we selected samples of impaired loans
and obtained an understanding of the borrower’s business and its financial capacity. This was done by
inquiring on the latest developments about the borrower and checking the payment history of the borrower
including payments made subsequent to yearend. We also tested the assumptions underlying the
calculation of the allowance for credit losses by assessing whether the expected future cash flows are
based on the borrower’s current financial condition and comparing the value of the collateral held to the
latest appraisal reports. We also checked whether the discount rate used in the calculation represents the
original effective interest rate (EIR) or the current EIR of the loan.
For allowance for credit losses calculated on a collective basis, we tested the underlying models and the
inputs to those models, such as historical loss rates and net flow rates. This was done by agreeing the
details of the loan information used in the calculation of loss rates and net flow rates to the Group’s
records and subsidiary ledgers, testing the delinquency age buckets for the consumer loans and credit risk
groupings for the corporate loans, and re-performing the calculation of the allowance for credit losses.
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Applicable to the Audit of the Parent Company Financial Statements
Accounting for Hold-to-Collect (HTC) Securities

The Parent Company has certain government and corporate securities that are managed with the objective
of holding them in order to collect contractual cash flows that are solely payments of principal and
interest on the principal amount outstanding. The HTC securities, which are classified as ‘Investment
securities at amortized cost,’ represent 30.3% of the total assets of the Parent Company.
In 2017, the Parent Company disposed of certain HTC securities. The assessment of the impact of the
disposals of HTC securities on the Parent Company’s HTC business model involves significant judgment
and would impact the measurement of the securities in the affected portfolios. The Parent Company’s
assessment of the impact of the disposals on the HTC business model are discussed in Notes 3 and 11 to
the financial statements.
Audit Response
We obtained an understanding of the Parent Company’s objectives for the disposals of HTC government
and corporate securities by reviewing management’s approved internal documentations. We evaluated
management’s assessment of the impact of the disposals in reference to the Parent Company’s current
business models and the provisions of the relevant accounting standards and regulatory issuances. We
also reviewed the calculation of the gains on the disposals and the measurement of the remaining
securities in the affected portfolios.
Other Information
Management is responsible for the other information. The other information comprises the information
included in the SEC Form 20-IS (Definitive Information Statement), SEC Form 17-A, and Annual Report
for the year ended December 31, 2017, but does not include the consolidated and parent company
financial statements and our auditor’s report thereon. The SEC Form 20-IS (Definitive Information
Statement), SEC Form 17-A, and Annual Report for the year ended December 31, 2017 are expected to be
made available to us after the date of this auditor’s report.
Our opinion on the consolidated and parent company financial statements does not cover the other
information and we do not express any form of assurance conclusion thereon.
In connection with our audits of the consolidated and parent company financial statements, our
responsibility is to read the other information identified above when it becomes available and, in doing so,
consider whether the other information is materially inconsistent with the consolidated and parent
company financial statements or our knowledge obtained in the audit, or otherwise appears to be
materially misstated.
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Responsibilities of Management and Those Charged with Governance for the Consolidated and
Parent Company Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated and parent
company financial statements in accordance with PFRS, and for such internal control as management
determines is necessary to enable the preparation of consolidated and parent company financial statements
that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated and parent company financial statements, management is responsible for
assessing the Group’s and the Parent Company’s ability to continue as a going concern, disclosing, as
applicable, matters related to going concern and using the going concern basis of accounting unless
management either intends to liquidate the Group and the Parent Company or to cease operations, or has
no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Group’s and the Parent Company’s
financial reporting process.
Auditor’s Responsibilities for the Audit of the Consolidated and Parent Company Financial
Statements
Our objectives are to obtain reasonable assurance about whether the consolidated and parent company
financial statements as a whole are free from material misstatement, whether due to fraud or error, and to
issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but
is not a guarantee that an audit conducted in accordance with PSAs will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material if,
individually or in the aggregate, they could reasonably be expected to influence the economic decisions of
users taken on the basis of these consolidated and parent company financial statements.
As part of an audit in accordance with PSAs, we exercise professional judgment and maintain professional
skepticism throughout the audit. We also:
∂ Identify and assess the risks of material misstatement of the consolidated and parent company
financial statements, whether due to fraud or error, design and perform audit procedures responsive to
those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our
opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one
resulting from error, as fraud may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal control.
∂ Obtain an understanding of internal control relevant to the audit in order to design audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Group’s and the Parent Company’s internal control.
∂ Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by management.
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∂ Conclude on the appropriateness of management’s use of the going concern basis of accounting and,
based on the audit evidence obtained, whether a material uncertainty exists related to events or
conditions that may cast significant doubt on the Group’s and the Parent Company’s ability to
continue as a going concern. If we conclude that a material uncertainty exists, we are required to
draw attention in our auditor’s report to the related disclosures in the consolidated and parent
company financial statements or, if such disclosures are inadequate, to modify our opinion. Our
conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However,
future events or conditions may cause the Group and the Parent Company to cease to continue as a
going concern.
∂ Evaluate the overall presentation, structure and content of the consolidated and parent company
financial statements, including the disclosures, and whether the consolidated and parent company
financial statements represent the underlying transactions and events in a manner that achieves fair
presentation.
∂ Obtain sufficient appropriate audit evidence regarding the financial information of the entities or
business activities within the Group to express an opinion on the consolidated financial statements.
We are responsible for the direction, supervision and performance of the audit. We remain solely
responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope
and timing of the audit and significant audit findings, including any significant deficiencies in internal
control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant
ethical requirements regarding independence, and to communicate with them all relationships and other
matters that may reasonably be thought to bear on our independence, and where applicable, related
safeguards.
From the matters communicated with those charged with governance, we determine those matters that
were of most significance in the audit of the consolidated and parent company financial statements of the
current period and are therefore the key audit matters. We describe these matters in our auditor’s report
unless law or regulation precludes public disclosure about the matter or when, in extremely rare
circumstances, we determine that a matter should not be communicated in our report because the adverse
consequences of doing so would reasonably be expected to outweigh the public interest benefits of such
communication.
Report on the Supplementary Information Required Under Revenue Regulations 15-2010
Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken
as a whole. The supplementary information required under Revenue Regulations 15-2010 in Note 40 to
the financial statements is presented for purposes of filing with the Bureau of Internal Revenue and is not
a required part of the basic financial statements. Such information is the responsibility of the management
of Security Bank Corporation. The information has been subjected to the auditing procedures applied in
our audit of the basic financial statements. In our opinion, the information is fairly stated, in all material
respects, in relation to the basic financial statements taken as a whole.
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The engagement partner on the audit resulting in this independent auditor’s report is Aris C. Malantic.
SYCIP GORRES VELAYO & CO.
Aris C. Malantic
Partner
CPA Certificate No. 90190
SEC Accreditation No. 0326-AR-3 (Group A),
May 1, 2015, valid until April 30, 2018
Tax Identification No. 152-884-691
BIR Accreditation No. 08-001998-54-2018,
February 26, 2018, valid until February 25, 2021
PTR No. 6621284, December 31, 2018, Makati City
February 27, 2018
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SECURITY BANK CORPORATION AND SUBSIDIARIES
STATEMENTS OF FINANCIAL POSITION
Consolidated Parent Company

December 31
2017 2016 2017 2016
(Amounts in Thousands)
ASSETS
Cash and Other Cash Items P
= 7,956,367 P
=7,692,810 P
= 7,956,342 P
=7,692,718
Due from Bangko Sentral ng Pilipinas (Note 17) 56,592,042 71,662,840 56,592,042 71,423,852
Due from Other Banks (Note 32) 69,605,805 63,943,682 69,520,321 63,881,127
Interbank Loans Receivable and Securities Purchased Under
Resale Agreements with the Bangko Sentral ng Pilipinas 5,688,647 690,309 5,688,647 −
Financial Assets at Fair Value through Profit or Loss
(Note 9) 4,592,495 3,388,684 4,495,369 3,388,351
Financial Assets at Fair Value through Other
Comprehensive Income (Note 10) 200,271 178,246 151,370 122,820
Investment Securities at Amortized Cost (Note 11) 229,593,315 245,953,648 229,593,315 245,953,648
Loans and Receivables (Notes 12 and 32) 370,189,758 289,657,801 367,988,261 288,842,486
Investments in Subsidiaries and a Joint Venture (Note 13) 266,855 241,403 3,786,056 3,760,212
Property and Equipment (Note 14) 4,104,073 3,457,433 3,148,305 2,944,651
Investment Properties (Note 15) 791,306 659,051 793,772 665,069
Deferred Tax Assets (Note 28) 1,763,432 1,127,172 1,579,523 942,883
Goodwill (Note 4) 841,602 841,602 841,602 841,602
Intangible Assets (Note 16) 2,019,039 1,883,643 1,993,709 1,848,875
Other Assets (Note 16) 2,604,444 3,603,381 2,418,021 3,459,762
TOTAL ASSETS P
= 756,809,451 P
=694,981,705 P
= 756,546,655 P
=695,768,056
LIABILITIES AND EQUITY
LIABILITIES
Deposit Liabilities (Notes 17 and 32)
Demand P
= 109,706,357 P
=92,625,208 P
= 110,512,177 P
=93,458,500
Savings 117,302,230 141,059,721 118,159,333 142,199,177
Time 167,568,814 102,940,255 167,831,799 103,228,511
Long-term Negotiable Certificates of Deposit 18,526,475 9,972,738 18,526,475 9,972,738
413,103,876 346,597,922 415,029,784 348,858,926
Financial Liabilities at Fair Value through
Profit or Loss (Notes 6 and 18) 2,013,182 656,265 2,013,182 656,265
Derivative Liabilities Designated as Hedges
(Notes 6, 12 and 19) − 3,826 − 3,826
Bills Payable and Securities Sold Under
Repurchase Agreements (Note 20) 193,962,051 210,877,672 193,812,051 210,787,672
Acceptances Payable 684,690 749,665 684,690 749,665
Margin Deposits and Cash Letters of Credit 650,277 384,497 650,277 384,497
Manager’s and Certified Checks Outstanding 3,607,138 3,055,903 3,607,138 3,055,903
Income Tax Payable (Note 28) 681,080 54,695 658,507 49,994
Notes Payable (Note 21) 14,948,402 14,869,397 14,948,402 14,869,397
Subordinated Note (Note 22) 9,950,814 9,944,724 9,950,814 9,944,724
Accrued Interest, Taxes and Other Expenses (Note 23) 4,039,169 3,281,119 3,994,532 3,222,724
Other Liabilities (Note 24) 8,090,343 7,379,102 6,051,996 6,028,619
TOTAL LIABILITIES 651,731,022 597,854,787 651,401,373 598,612,212
(Forward)
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December 31
2017 2016 2017 2016
EQUITY ATTRIBUTABLE TO EQUITY

HOLDERS OF THE PARENT
COMPANY
Capital stock (Note 26) P
= 7,635,389 P
=7,635,389 P
= 7,635,389 P
=7,635,389
Additional paid-in capital (Note 26) 38,524,323 38,524,323 38,551,028 38,551,028
Surplus reserves (Note 26) 1,332,985 717,874 1,300,800 686,300
Surplus (Notes 26 and 29) 57,520,438 49,909,010 57,609,739 49,953,230
Net unrealized gain on financial assets at fair value through other
comprehensive income (Note 10) 90,968 72,018 85,788 66,838
Net unrealized gain on subsidiaries’ financial assets at fair value
through other comprehensive income (Notes 10 and 13) 21,423 18,428 15,176 18,428
Cumulative foreign currency translation (52,638) 244,631 (52,638) 244,631
105,072,888 97,121,673 105,145,282 97,155,844
NON-CONTROLLING INTEREST 5,541 5,245 − −
TOTAL EQUITY 105,078,429 97,126,918 105,145,282 97,155,844
TOTAL LIABILITIES AND EQUITY P

= 756,809,451 P
=694,981,705 P
= 756,546,655 P
=695,768,056
See accompanying Notes to Financial Statements.
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STATEMENTS OF INCOME

Years Ended December 31
2017 2016 2015 2017 2016 2015
(Amounts in Thousands, Except Earnings per Share)
CONTINUING OPERATIONS
INTEREST INCOME ON
Loans and receivables (Notes 12 and 32) P
= 17,356,906 P
=13,313,371 P
=10,869,481 P
= 17,289,877 P
=13,206,185 P
=10,526,107
Financial investments (Note 7) 11,001,707 9,095,371 7,403,292 10,999,486 9,095,371 7,398,911
Interbank loans receivable and securities purchased
under resale agreements with the Bangko
Sentral ng Pilipinas 119,731 180,816 9,546 119,731 169,461 6,277
Deposits with banks and others 316,471 235,613 66,316 312,486 223,367 52,981
28,794,815 22,825,171 18,348,635 28,721,580 22,694,384 17,984,276
INTEREST EXPENSE ON
Deposit liabilities (Notes 17 and 32) 5,229,464 3,500,375 3,196,563 5,226,066 3,484,031 3,143,654
Subordinated note, bills payable, securities
sold under repurchase agreements,
notes payable, and other borrowings (Note 20) 3,587,076 2,618,456 1,817,604 3,581,285 2,616,060 1,813,059
Derivative instruments (Note 18) 588,243 796,513 910,549 588,243 796,513 910,549
Derivatives designated as hedges (Note 19) 4,156 16,381 25,245 4,156 16,381 25,245
9,408,939 6,931,725 5,949,961 9,399,750 6,912,985 5,892,507
NET INTEREST INCOME 19,385,876 15,893,446 12,398,674 19,321,830 15,781,399 12,091,769

Gain on disposal of investment securities at
amortized cost (Notes 8 and 11) 2,349,270 1,609,502 2,067,016 2,349,270 1,609,502 2,067,016
Service charges, fees and commissions (Note 30) 2,320,430 2,172,862 2,109,627 1,841,249 1,587,083 1,477,445
Rent (Notes 15, 32 and 33) 289,555 178,074 78,215 38,504 48,155 38,269
Profit from assets sold/exchanged
(Notes 15 and 16) 144,926 108,132 78,053 142,587 104,916 53,838
Foreign exchange gain - net (Note 6) 125,880 153,995 298,309 125,657 141,675 281,628
Trading and securities gain - net (Note 8) 26,965 142,694 174,679 28,032 142,870 180,968
Share in net income of subsidiaries and
a joint venture (Note 13) 25,452 21,192 22,859 210,559 231,363 181,735
Gain on reclassification of investment
securities at amortized cost to financial
assets at fair value through profit or loss
(Notes 8 and 11) − − 625,926 − − 625,926
Miscellaneous (Note 31) 416,746 551,904 455,639 352,894 355,245 419,595
TOTAL OPERATING INCOME 25,085,100 20,831,801 18,308,997 24,410,582 20,002,208 17,418,189
OPERATING EXPENSES
Compensation and fringe benefits
(Notes 29 and 32) 4,258,952 3,738,064 3,124,727 4,166,079 3,601,714 2,890,554
Taxes and licenses (Note 28) 1,561,636 1,226,806 1,272,871 1,523,300 1,183,167 1,206,790
Depreciation and amortization (Note 14) 943,964 640,067 549,497 742,159 533,756 490,020
Occupancy costs (Notes 15, 32 and 33) 904,610 764,261 693,033 897,075 735,700 658,439
Provision for credit losses (Note 12) 656,469 937,544 628,208 629,322 877,028 616,013
Amortization of software costs (Note 16) 126,127 69,767 56,171 122,890 65,725 48,351
Provision for (recovery of) impairment losses
(Note 15) (5,328) 6,829 (9,233) (2,180) 9,617 (28,151)
Miscellaneous (Note 31) 4,687,425 4,017,588 3,691,633 4,395,326 3,602,377 3,213,745
TOTAL OPERATING EXPENSES 13,133,855 11,400,926 10,006,907 12,473,971 10,609,084 9,095,761
(Forward)
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2017 2016 2015 2017 2016 2015
(Amounts in Thousands, Except Earnings per Share)
INCOME BEFORE INCOME TAX P
= 11,951,245 P
=9,430,875 P
=8,302,090 P
= 11,936,611 P
=9,393,124 P
=8,322,428
PROVISION FOR INCOME TAX (Note 28) 1,686,152 877,216 914,628 1,627,344 896,131 864,425
NET INCOME FROM CONTINUING

OPERATIONS 10,265,093 8,553,659 7,387,462 10,309,267 8,496,993 7,458,003
DISCONTINUED OPERATIONS
Discontinued operations, net of tax (Note 13) – – 367,929 – – 307,668
NET INCOME P
= 10,265,093 P
=8,553,659 P
=7,755,391 P
= 10,309,267 P
=8,496,993 P
=7,765,671
ATTRIBUTABLE TO:
Equity holders of the Parent Company (Notes 26
and 36) P
= 10,264,797 P
=8,553,545 P
=7,699,327
Non-controlling interest 296 114 56,064
NET INCOME P
= 10,265,093 P
=8,553,659 P
=7,755,391
Basic/Diluted Earnings Per Share (Note 36) P

= 13.62 P
=11.95 P
=12.77
Basic/Diluted Earnings Per Share - Continuing

Operations (Note 36) P
= 13.62 P
=11.95 P
=12.25
Basic/Diluted Earnings Per Share -

Discontinued Operations (Note 13) P
=– =
P– P
=0.52
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STATEMENTS OF COMPREHENSIVE INCOME

2017 2016 2015 2017 2016 2015
NET INCOME FOR THE YEAR P

= 10,265,093 P
=8,553,659 P
=7,755,391 P
= 10,309,267 P
=8,496,993 P
=7,765,671
OTHER COMPREHENSIVE INCOME

(LOSS)
Other Comprehensive Income (Loss) to be
Reclassified to Profit or Loss in
Subsequent Periods:
Cumulative translation adjustments (297,269) 126,271 42,114 (297,269) 126,265 42,113
Other Comprehensive Income (Loss) not
to be Reclassified to Profit or Loss in
Subsequent Periods:
Remeasurement gains (losses) on defined
benefit plans (Notes 13, 26 and 29) 226,618 (133,247) (214,731) 226,618 (133,250) (214,764)
Net unrealized gain on financial assets at fair value
through other comprehensive income, net of tax
(Note 10) 21,945 13,949 9,730 15,698 13,949 4,536
248,563 (119,298) (205,001) 242,316 (119,301) (210,228)
OTHER COMPREHENSIVE INCOME

(LOSS) FOR THE YEAR (48,706) 6,973 (162,887) (54,953) 6,964 (168,115)
TOTAL COMPREHENSIVE INCOME P

= 10,216,387 P
=8,560,632 P
=7,592,504 P
= 10,254,314 P
=8,503,957 P
=7,597,556
ATTRIBUTABLE TO:
Equity holders of the Parent Company P
= 10,216,091 P
=8,560,515 P
=7,536,393
Non-controlling interest 296 117 56,111
P
= 10,216,387 P
=8,560,632 P
=7,592,504
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STATEMENTS OF CHANGES IN EQUITY
Consolidated
Years Ended December 31, 2017, 2016 and 2015
Equity Attributable to Equity Holders of the Parent Company
Net Unrealized
Net Unrealized Gain on
Gain on Subsidiaries’
Financial Assets Financial Assets
at Fair Value at Fair Value
Additional through Other through Other Cumulative
Capital Paid-in Surplus Comprehensive Comprehensive Foreign Non-
Stock Capital Reserves Surplus Income Income Currency controlling
(Note 26) (Note 26) (Note 26) (Note 26) (Note 10) (Note 10) Translation Total Interest Total Equity
Balance at January 1, 2017 P

= 7,635,389 P
= 38,524,323 P
= 717,874 =
P49,909,010 P
= 72,018 =
P18,428 P
= 244,631 =
P97,121,673 P
= 5,245 P
= 97,126,918
Total comprehensive income for the year – – – 10,491,415 18,950 2,995 (297,269) 10,216,091 296 10,216,387
Transfers to surplus reserves – – 615,111 (615,111) – – – – – –
Declaration of cash dividends – – – (2,264,876) – – – (2,264,876) – (2,264,876)
Balance at December 31, 2017 P
= 7,635,389 P
= 38,524,323 P
= 1,332,985 =
P57,520,438 P
= 90,968 =
P21,423 (P
= 52,638) =
P105,072,888 P
= 5,541 P
= 105,078,429
Balance at January 1, 2016 =

P6,088,594 =
P3,210,200 =
P492,727 =
P43,223,291 =
P56,058 =
P20,439 =
P118,360 =
P53,209,669 =
P5,128 P
=53,214,797
Issuance of capital stock 1,546,795 35,314,123 – – – – – 36,860,918 – 36,860,918
Total comprehensive income for the year – – – 8,420,295 15,960 (2,011) 126,271 8,560,515 117 8,560,632
Transfers to surplus reserves – – 225,147 (225,147) – − – – – –
Declaration of cash dividends – – – (1,509,429) – − – (1,509,429) – (1,509,429)
=7,635,389 P
=38,524,323 P
=717,874 =
P49,909,010 P
=72,018 =
P18,428 P
=244,631 =
P97,121,673 P
=5,245 P
=97,126,918

=6,088,594 P
=3,210,200 P
=487,771 =
P36,951,697 P
=41,930 =
P24,851 P
=76,246 =
P46,881,289 P
=1,075,750 P
=47,957,039
Total comprehensive income for the year – – – 7,484,563 14,128 (4,412) 42,114 7,536,393 56,111 7,592,504
Transfers to surplus reserves – – 4,956 (4,956) – − – – – –
Discontinued operations (Note 13) – – – – – − – – (1,103,160) (1,103,160)
Deconsolidation of a subsidiary (Note 13) – – – – – – – – (73) (73)
Declaration of cash dividends – – – (1,208,013) – − – (1,208,013) (23,500) (1,231,513)
=6,088,594 P
=3,210,200 P
=492,727 =
P43,223,291 P
=56,058 =
P20,439 P
=118,360 =
P53,209,669 P
=5,128 P
=53,214,797
*SGVFS027055*
-2-
Parent Company
Years Ended December 31, 2017, 2016 and 2015
Net Unrealized
Net Unrealized Gain on
Gain on Subsidiaries’
Financial Assets Financial Assets
at Fair Value at Fair Value
Additional through Other through Other
Capital Paid-in Surplus Comprehensive Comprehensive Cumulative
Stock Capital Reserves Surplus Income Income Foreign Currency
(Note 26) (Note 26) (Note 26) (Note 26) (Note 10) (Note 10) Translation Total Equity

= 7,635,389 P
= 38,551,028 =
P686,300 P
= 49,953,230 P
= 66,838 =
P18,428 P
= 244,631 P
= 97,155,844
Total comprehensive income for the year – – – 10,535,885 18,950 (3,252) (297,269) 10,254,314
Transfers to surplus reserves – – 614,500 (614,500) – – – –
Declaration of cash dividends – – – (2,264,876) – – – (2,264,876)
= 7,635,389 P
= 38,551,028 =
P1,300,800 P
= 57,609,739 P
= 85,788 =
P15,176 (P
= 52,638) P
= 105,145,282

=6,088,594 P
=3,236,905 =
P462,983 P
=43,322,233 P
=50,878 =
P20,439 P
=118,366 P
=53,300,398
Issuance of capital stock 1,546,795 35,314,123 – – – – – 36,860,918
Total comprehensive income for the year – – – 8,363,743 15,960 (2,011) 126,265 8,503,957
=7,635,389 P
=38,551,028 =
P686,300 P
=49,953,230 P
=66,838 =
P18,428 P
=244,631 P
=97,155,844

=6,088,594 P
=3,236,905 =
P442,783 P
=36,999,539 P
=41,930 =
P24,851 P
=76,253 P
=46,910,855
Total comprehensive income for the year – – – 7,550,907 8,948 (4,412) 42,113 7,597,556
=6,088,594 P
=3,236,905 =
P462,983 P
=43,322,233 P
=50,878 =
P20,439 P
=118,366 P
=53,300,398
*SGVFS027055*
STATEMENTS OF CASH FLOWS

2017 2016 2015 2017 2016 2015
CASH FLOWS FROM OPERATING
ACTIVITIES
Income from continuing operations
before income tax P
= 11,951,245 P
=9,430,875 P
=8,302,090 P
= 11,936,611 P
=9,393,124 P
=8,322,428
Income from discontinued operations
before income tax (Note 13) − − 468,958 − − 495,339
Income before income tax 11,951,245 9,430,875 8,771,048 11,936,611 9,393,124 8,817,767
Adjustments for:
Depreciation and amortization (Note 14) 943,964 640,067 565,886 742,159 533,756 490,020
Provision for credit losses (Note 12) 656,469 937,544 628,208 629,322 877,028 616,013
Unrealized market valuation loss (gain)
on financial instruments at fair value
through profit or loss
(Notes 9, 18 and 19) 563,089 (450,640) (454,843) 561,924 (450,640) (454,843)
Amortization of software costs (Note 16) 126,127 69,767 56,190 122,890 65,725 48,351
Provision for (recovery of) impairment
losses (Note 15) (5,328) 6,829 (9,233) (2,180) 9,617 (28,151)
Amortization of transaction costs on
LTNCD, notes payable and
subordinated note
(Notes 17, 21 and 22) 34,920 27,437 24,822 34,920 27,437 24,822
Gain on sale of a subsidiary
(Notes 13 and 31) − − (413,969) − − (495,339)
Share in net income of subsidiaries
and a joint venture (Note 13) (25,452) (21,192) (22,859) (210,559) (231,363) (181,735)
Gain on reclassification of investment
securities at amortized cost to financial
assets at fair value through profit or
loss (Note 11) − − (625,926) − − (625,926)
Profit from assets sold/exchanged
(Notes 13, 14, 15 and 16) (144,926) (108,132) (147,662) (142,587) (104,916) (53,838)
Gain on disposal of investment securities
at amortized cost (Notes 8 and 11) (2,349,270) (1,609,502) (2,067,016) (2,349,270) (1,609,502) (2,067,016)
Changes in operating assets and liabilities:
Decrease (increase) in the amounts of:
Interbank Loans Receivable and
SPURA (110,430) − − (110,430) − −
Financial assets at FVTPL (Note 9) (413,809) (105,860) 8,563,417 (315,851) (106,021) 8,561,689
Loans and receivables (Note 12) (81,441,581) (52,930,794) (47,260,743) (79,833,252) (53,625,189) (47,814,510)
Other assets 922,598 (777,006) (658,944) 949,363 (753,750) (747,764)
Increase (decrease) in the amounts of:
Deposit liabilities (Note 17) 57,952,217 57,061,009 42,703,811 57,617,121 57,828,024 42,270,534
Acceptances payable (64,975) 407,507 47,785 (64,975) 407,507 47,785
Margin deposits and cash letters
of credit 265,780 59,522 292,003 265,780 59,522 292,003
Manager's and certified checks
outstanding 551,235 282,447 616,619 551,235 282,447 613,944
Accrued interest, taxes and other
expenses (Note 23) 984,668 202,682 802,960 984,888 249,581 837,768
Other liabilities (Note 24) 723,876 (737,053) 533,205 29,733 (999,696) 86,372
Net cash generated from (used in) operations (8,879,583) 12,385,507 11,944,759 (8,603,158) 11,852,691 10,237,946
Income taxes paid (1,702,306) (1,011,589) (1,021,436) (1,655,471) (929,071) (883,189)
Net cash provided by (used in) operating
activities (10,581,889) 11,373,918 10,923,323 (10,258,629) 10,923,620 9,354,757
*SGVFS027055*
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2017 2016 2015 2017 2016 2015
CASH FLOWS FROM INVESTING
ACTIVITIES
Acquisitions of:
Investment securities at amortized cost = 61,207,446) (P
(P =108,854,298) (P
=134,940,378) (P
= 61,207,446) (P
=108,854,298) (P
=134,940,378)
Property and equipment (Note 14) (1,559,574) (1,683,819) (869,443) (941,582) (1,313,477) (562,654)
Software costs (Note 16) (248,123) (317,763) (123,791) (247,724) (312,585) (118,505)
Branch licenses (Note 16) (20,000) (80,000) – (20,000) (80,000) −
Proceeds from:
Disposal or maturities of investment
securities at amortized cost 79,917,049 51,292,237 54,670,548 79,917,049 51,292,237 54,321,408
Disposal of investment properties 285,535 95,016 195,163 285,534 95,016 109,530
Disposal of property and equipment 37,448 217,473 118,639 62,233 208,481 79,997
Sale of a subsidiary (Note 13) − − 959,430 − − 1,600,000
Assumption of net liabilities of a
subsidiary (Note 13) − − − − − 1,522,124
Dividend received from subsidiaries
(Note 13) − − – − 150,000 25,264
Net cash provided by (used in) investing
activities 17,204,889 (59,331,154) (79,989,832) 17,848,064 (58,814,626) (77,963,214)
CASH FLOWS FROM FINANCING

ACTIVITIES
Settlements of bills payable and
securities sold under repurchase
agreements (4,600,670,799) (5,803,414,872) (6,019,107,646) (4,600,357,786) (5,803,414,872) (6,089,131,306)
Proceeds from:
Bills payable and securities sold
under repurchase agreements 4,583,755,178 5,864,190,350 6,089,608,306 4,583,382,165 5,864,100,350 6,159,749,966
Issuance of LTNCD Note 17) 8,541,289 − – 8,541,289 – –
Issuance of notes payable (Note 21) − − 13,166,023 – – 13,166,023
Issuance of preferred stock (Note 26) − 39,717 – – 39,717 –
Issuance of common stock (Note 26) − 36,821,201 – – 36,821,201 –
Cash dividends paid (Note 26) (2,271,232) (1,505,242) (1,228,434) (2,271,232) (1,505,242) (1,204,934)
Net cash provided by (used in)
financing activities (10,645,564) 96,131,154 82,438,249 (10,705,564) 96,041,154 82,579,749
Effect of exchange rate differences (234,646) 921,780 929,261 (234,646) 921,808 929,250
NET INCREASE (DECREASE)

IN CASH AND CASH
EQUIVALENTS (4,257,210) 49,095,698 14,301,001 (3,350,775) 49,071,956 14,900,542
CASH AND CASH EQUIVALENTS

AT BEGINNING OF YEAR
Cash and other cash items P
= 7,692,810 P
=6,646,264 P
=5,619,751 P
= 7,692,718 P
=6,646,157 P
=5,307,008
Due from Bangko Sentral ng Pilipinas 71,662,840 56,882,313 35,843,596 71,423,852 55,989,081 34,671,149
Due from other banks 63,943,682 31,365,366 39,129,595 63,881,127 31,290,503 39,047,042
Interbank loans receivable and
securities purchased under
resale agreements with the
Bangko Sentral ng Pilipinas 690,309 – – – – –
143,989,641 94,893,943 80,592,942 142,997,697 93,925,741 79,025,199
(Forward)
*SGVFS027055*
-3-

2017 2016 2015 2017 2016 2015
CASH AND CASH EQUIVALENTS
AT END OF YEAR
= 7,956,367 P
=7,692,810 P
=6,646,264 P
= 7,956,342 P
=7,692,718 P
=6,646,157
Due from Bangko Sentral ng
Pilipinas 56,592,042 71,662,840 56,882,313 56,592,042 71,423,852 55,989,081
securities purchased under
resale agreements with the
Bangko Sentral ng Pilipinas 5,578,217 690,309 – 5,578,217 – –
P
= 139,732,431 P
=143,989,641 P
=94,893,943 P
= 139,646,922 P
=142,997,697 P
=93,925,741
OPERATIONAL CASH FLOWS FROM

INTEREST AND DIVIDENDS
Interest received P
= 29,023,716 P
=21,824,796 P
=16,993,896 P
= 28,963,576 P
=21,620,959 P
=16,546,546
Interest paid 8,956,391 6,550,756 5,510,256 8,947,977 6,531,691 5,432,857
Dividends received 6,679 11,877 17,062 5,431 10,608 15,541
*SGVFS027055*
NOTES TO FINANCIAL STATEMENTS
1. Corporate Information
Security Bank Corporation (the Parent Company) is a domestic corporation registered with the
Securities and Exchange Commission (SEC) in 1951 and was listed in the Philippine Stock Exchange
(PSE) in 1995. The Parent Company’s head office is located at Security Bank Centre, 6776 Ayala
Avenue, Makati City.
The Parent Company was incorporated on May 8, 1951 and started its operations as a commercial
bank on June 18, 1951. On May 30, 2000, the Board of Directors (BOD) of the Parent Company
approved its Amended Articles of Incorporation to extend the corporate term of the Parent Company,
which expired on May 8, 2001, for another 50 years. On February 19, 2001, the SEC approved such
amendment.
In 1994, it was approved by the Bangko Sentral ng Pilipinas (BSP) to operate as a universal bank,
allowing it to expand its financial services and revenue sources.
The Parent Company provides expanded commercial banking services such as deposit products, loans
and trade finance, domestic and foreign fund transfers, treasury, foreign exchange and trust services.
In addition, the Parent Company is licensed to engage in financial derivatives to service the
requirements of its customers and as a means of reducing and managing the Parent Company’s
foreign exchange and interest rate exposures.
The Parent Company and its subsidiaries (collectively referred to as the “Group”), which are all
incorporated in the Philippines, are engaged in the following businesses:
Effective Percentage of
Ownership
Principal place of December 31, December 31,
Subsidiaries business Line of Business 2017 2016
18th floor, Security Bank
SB Capital Investment Centre, 6776 Ayala
Corporation (SBCIC) Avenue, Makati City Investment house 100.00 100.00
18th floor, Security Bank
Centre, 6776 Ayala
SB Equities, Inc. (SBEI) Avenue, Makati City Stock brokerage 100.00 100.00
SB International Services, 17th floor, Security Bank
Inc. (SISI) (pre-operating Centre, 6776 Ayala Marketing
stage) Avenue, Makati City services 100.00 100.00
11th floor, Pacific Star
Building, Sen. Gil Puyat
SB Rental Corporation Ave. corner Makati Ave.
(SBRC) Makati City Rental / leasing 100.00 100.00
Security Bank Centre,
6776 Ayala Avenue, Credit card
SB Cards Corporation (SBCC) Makati City operations 100.00 100.00
Landlink Property Investments Security Bank Centre,
(SPV-AMC), Inc. (LPII) 6776 Ayala Avenue, Asset
(pre-operating stage) Makati City management 100.00 100.00
*SGVFS027055*
-2-
Effective Percentage of
Ownership
Principal place of December 31, December 31,
Subsidiaries business Line of Business 2017 2016
SB Forex, Incorporated (SBFI) Security Bank Centre,
(suspended operation) 6776 Ayala Avenue, Foreign exchange
Makati City services 100.00 100.00
SB Finance Company, Inc.
(SBFCI) (formerly Security 6797 Ayala Avenue
Bank Savings Corporation corner Rufino St., Makati
(SBS)) City Financing 99.54 99.54
The Parent Company is the Ultimate Parent Company of the Group.
In 2017, the SEC approved the conversion of SBS from a savings bank to a finance company under
the name of SBFCI (see Note 13).
In 2016, the Bank of Tokyo-Mitsubishi UFJ, Ltd. (BTMU) acquired a 20.0% voting interest in the
Parent Company (see Note 26).
In 2016, SBCC sold a substantial portion of its existing Diners Club International credit card portfolio
and its cardholder base (see Note 13).
In 2015, the Parent Company sold its 51.81% shareholdings in Security Land Corporation (SLC), a real
estate company, while Security-Philam Financial Solutions and Insurance Agency, Inc (SPFSIAI), a
joint venture entity and 50.0% owned by the Parent Company, was liquidated (see Note 13).
In 2014, the Parent Company entered into a distribution agreement with FWD Life Insurance
Corporation (FWD) for the marketing of the FWD’s life insurance products through the Parent
Company’s marketing and distribution network. The distribution agreement was approved by the
BSP on December 22, 2014 under Monetary Board Resolution No. 2073, through its letter to the
Parent Company dated January 7, 2015, and the Insurance Commission on January 12, 2015. As
required under BSP Circular 844, Cross-selling of Collective Investment Schemes and Other
Amendments to Circular No. 801 on Revised Cross-selling Framework which amended Section X172
of the MORB Cross-Selling Framework, cross-selling of financial products within the bank premises
should be done by a regulated financial entity belonging to the same financial conglomerate.
Accordingly, a voting trust agreement executed by FWD took effect upon BSP approval of the
distribution agreement where the Parent Company can exercise 10% voting rights at any of FWD’s
shareholders’ meeting.
2. Summary of Significant Accounting Policies
Basis of Preparation
The accompanying consolidated financial statements include the financial statements of the Parent
Company and its subsidiaries.
The accompanying financial statements have been prepared on a historical cost basis except for
financial assets and financial liabilities at Fair Value through Profit or Loss (FVTPL) and financial
assets at Fair Value through Other Comprehensive Income (FVTOCI) that have been measured at fair
value. The carrying values of recognized loans and receivables that are hedged items in fair value
hedges, and otherwise carried at amortized cost, are adjusted to record changes in fair value
*SGVFS027055*
-3-
attributable to the risks that are being hedged. The financial statements are presented in Philippine
Peso and all values are rounded to the nearest thousand peso (P =000) except when otherwise indicated.
The financial statements of the Parent Company include the accounts maintained in the Regular
Banking Unit (RBU) and Foreign Currency Deposit Unit (FCDU). The functional currency of the
RBU and the FCDU is the Philippine Peso and United States Dollar (USD), respectively. For
financial reporting purposes, the FCDU accounts and foreign currency-denominated accounts in the
RBU are translated into their equivalents in Philippine peso, which is the Parent Company’s
presentation currency (see accounting policy on Foreign Currency Translation). The financial
statements individually prepared for these units are combined after eliminating inter-unit accounts.
The consolidated financial statements provide comparative information in respect of the previous
period.
Each entity in the Group determines its own functional currency and the items included in the
financial statements of each entity are measured using that functional currency. The functional
currency of each of the Parent Company’s subsidiaries is the Philippine Peso.
Statement of Compliance
The accompanying financial statements have been prepared in compliance with Philippine Financial
Reporting Standards (PFRS).
Basis of Consolidation
The consolidated financial statements of the Group are prepared for the same reporting period as the
subsidiaries, using consistent accounting policies.
Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement
with the investee and has the ability to affect those returns through its power over the investee.
Specifically, the Group controls an investee if and only if the Group has:
∂ Power over the investee (i.e., existing rights that give it the current ability to direct the relevant
activities of the investee);
∂ Exposure, or rights, to variable returns from its involvement with the investee; and
∂ The ability to use its power over the investee to affect its returns.
When the Group has less than a majority of the voting or similar rights of an investee, the Group
considers all relevant facts and circumstances in assessing whether it has power over an investee,
including:
∂ The contractual arrangement with the other vote holders of the investee;
∂ Rights arising from other contractual arrangements; and
∂ The Group’s voting rights and potential voting rights.
The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that
there are changes to one or more of the three elements of control. Consolidation of a subsidiary
begins when the Group obtains control over the subsidiary and ceases when the Group loses control
of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of
during the year are included in the statement of comprehensive income from the date the Group gains
control until the date the Group ceases to control the subsidiary.
*SGVFS027055*
-4-
Profit or loss and each component of Other Comprehensive Income (OCI) are attributed to the equity
holders of the Parent Company and to the non-controlling interests, even if this results in the non-
controlling interests having a deficit balance. When necessary, adjustments are made to the financial
statements of subsidiaries to bring their accounting policies used in line with those used by the Group.
All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions
between members of the Group are eliminated in full on consolidation.
A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an
equity transaction. If the Group loses control over a subsidiary, it:
∂ derecognizes the assets (including goodwill) and liabilities of the subsidiary;

∂ derecognizes the carrying amount of any non-controlling interests;
∂ derecognizes the cumulative translation differences recorded in equity;
∂ recognizes the fair value of the consideration received;
∂ recognizes the fair value of any investment retained;
∂ recognizes any surplus or deficit in profit or loss; and
∂ reclassifies the Parent Company’s share of components’ gains (losses) previously recognized in
OCI to profit or loss or surplus, as appropriate, as would be required if the Group had directly
disposed of the related assets or liabilities.
Non-controlling Interest
Non-controlling interest represents the portion of profit or loss and net assets not owned, directly or
indirectly, by the Parent Company.
Non-controlling interests are presented separately in the consolidated statement of income,

consolidated statement of comprehensive income, and within equity in the consolidated statement
of financial position, separately from equity attributable to the Parent Company. Any losses
applicable to the non-controlling interests are allocated against the interests of the non-controlling
interest even if this results in the non-controlling interest having a deficit balance. Acquisitions of
non-controlling interests that do not result in a loss of control are accounted for as equity transactions,
whereby the difference between the consideration and the fair value of the share of the net assets
acquired is recognized as an equity transaction and attributed to the owners of the Parent Company.
Changes in Accounting Policies

Except for the following standards and amended PFRS which were adopted as of January 1, 2017, the
accounting policies and methods of computation adopted in the preparation of the financial
statements are consistent with those followed in the previous financial year. Unless otherwise
indicated, these new and revised accounting standards have no impact to the Group.
Amendments to PFRS 12, Disclosure of Interests in Other Entities, Clarification of the Scope of the
Standard (Part of Annual Improvements to PFRSs 2014 - 2016 Cycle)
The amendments clarify that the disclosure requirements in PFRS 12, other than those relating to
summarized financial information, apply to an entity’s interest in a subsidiary, a joint venture or an
associate or a portion of its interest in a joint venture or an associate that is classified or included in a
disposal group that is classified as held for sale. The amendment is applied retrospectively.
Amendments toPhilippine Accounting Standards (PAS) 7, Statement of Cash Flows, Disclosure

Initiative
The amendments require entities to provide disclosure of changes in their liabilities arising from
financing activities, including both changes arising from cash flows and non-cash changes such as
foreign exchange gains or losses.
*SGVFS027055*
-5-
The Group has provided the required information in Note 37 to the consolidated financial statements.
Amendments to PAS 12, Income Taxes, Recognition of Deferred Tax Assets for Unrealized Losses
The amendments clarify that an entity needs to consider whether tax law restricts the sources of
taxable profits against which it may make deductions upon the reversal of the deductible temporary
difference related to unrealized losses. Furthermore, the amendments provide guidance on how an
entity should determine future taxable profits and explain the circumstances in which taxable profit
may include the recovery of some assets for more than their carrying amount.
The amendment is applied retrospectively. However, their application has no effect on the Group’s
financial position and performance as the Group has no deductible temporary differences or assets
that are in the scope of the amendments.
Fair Value Measurement

For measurement and disclosure purposes, the Group determines the fair value of an asset or liability
at initial measurement or at each statements of financial position date.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date (i.e., an exit price). The fair value
measurement is based on the presumption that the transaction to sell the asset or transfer the liability
takes place either:
∂ In the principal market for the asset or liability, or
∂ In the absence of a principal market, in the most advantageous market for the asset or liability.
The principal or the most advantageous market must be accessible to the Group.
The fair value of an asset or a liability is measured using the assumptions that market participants
would use when pricing the asset or liability, assuming that market participants act in their economic
best interest.
If the asset or liability measured at fair value has a bid and ask price, the price within the bid-ask
spread that is most representative of fair value in the circumstances shall be used to measure fair
value, regardless of where the input is categorized within the fair value hierarchy.
A fair value measurement of a non-financial asset takes into account a market participant's ability to
generate economic benefits by using the asset in its highest and best use or by selling it to another
market participant that would use the asset in its highest and best use.
The Group uses valuation techniques that are appropriate in the circumstances and for which
sufficient data are available to measure fair value, maximizing the use of relevant observable inputs
and minimizing the use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are
categorized within the fair value hierarchy, described as follows, based on the lowest level input that
is significant to the fair value measurement as a whole:
∂ Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities
∂ Level 2 - Valuation techniques for which the lowest level input that is significant to the fair value
measurement is directly or indirectly observable
∂ Level 3 - Valuation techniques for which the lowest level input that is significant to the fair value
measurement is unobservable
*SGVFS027055*
-6-
For assets and liabilities that are recognized in the financial statements on a recurring basis, the Group
determines whether transfers have occurred between Levels in the hierarchy by re-assessing
categorization (based on the lowest level input that is significant to the fair value measurement as a
whole) at the end of each reporting period.
External appraisers are involved for valuation of significant non-financial assets, such as investment
properties. Selection criteria include market knowledge, reputation, independence and whether
professional standards are maintained.
For the purpose of fair value disclosures, the Group has determined classes of assets and liabilities on
the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value
hierarchy (see Note 6).
Financial Instruments - Initial Recognition and Subsequent Measurement

Date of recognition
Regular way purchases and sales of financial assets that require delivery of assets within the time
frame generally established by regulation or convention in the market, except for derivatives, are
recognized on the settlement date. Settlement date is the date on which the transaction is settled by
delivery of the assets that are the subject of the agreement. Settlement date accounting refers to (a)
the recognition of an asset on the day it is received by the Group, and (b) the derecognition of an asset
and recognition of any gain or loss on disposal on the day that it is delivered by the Group. Deposits,
amounts due to banks and customers, loans and receivables and spot transactions are recognized when
cash is received by the Group or advanced to the borrowers.
Derivatives are recognized on trade date - the date that the Group becomes a party to the contractual
provisions of the instrument. Trade date accounting refers to (a) the recognition of an asset to be
received and the liability to pay for it on the trade date, and (b) derecognition of an asset that is sold,
recognition of any gain or loss on disposal and the recognition of a receivable from the buyer for
payment on the trade date.
Initial recognition of financial instruments

All financial assets and financial liabilities are recognized initially at fair value plus any directly
attributable cost of acquisition or issue, except in the case of financial assets and financial liabilities at
FVTPL.
‘Day 1’ difference
Where the transaction price is different from the fair value based on other observable current market
transactions in the same instrument or based on a valuation technique whose variables include only
data from observable market, the Group immediately recognizes the difference between the
transaction price and the fair value of the instrument (a ‘Day 1’ difference) in the statement of income
unless it qualifies for recognition as some other type of asset or liability. In cases where data used is
not observable, the difference between the transaction price and model value is only recognized in the
statement of income when the inputs become observable or when the instrument is derecognized. For
each transaction, the Group determines the appropriate method of recognizing the ‘Day 1’ difference
amount.
Classification and Measurement of Financial Assets

For purposes of classifying financial assets, an instrument is an ‘equity instrument’ if it is a non-
derivative and meets the definition of ‘equity’ from the point of view of the issuer (under PAS 32,
Financial Instruments: Presentation), except for certain non-derivative puttable instruments
presented as equity by the issuer. All other non-derivative financial instruments are ‘debt
instruments’.
*SGVFS027055*
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Financial assets at amortized cost

Debt financial assets are measured at amortized cost if both of the following conditions are met:
∂ the asset is held within the Group’s business model whose objective is to hold assets in order to
collect contractual cash flows; and
∂ the contractual terms of the instrument give rise on specified dates to cash flows that are solely
payments of principal and interest on the principal amount outstanding.
Debt financial assets meeting these criteria are measured initially at fair value plus transaction costs.
They are subsequently measured at amortized cost using the effective interest method less any
impairment in value, with the interest calculated recognized as ‘Interest income’ in the statement of
income. The Group classified ‘Cash and other cash items (COCI)’, ‘Due from BSP’, ‘Due from other
banks’, ‘Interbank loans receivable and Securities purchased under resale agreements (SPURA) with
the BSP’, ‘Investment securities at amortized cost’, ‘Loans and receivables’, and cash collateral
deposits and security deposits (included under ‘Other assets’) as financial assets at amortized cost.
Loans and receivables include receivables arising from transactions on credit cards issued directly by
the Parent Company and SBCC which have tie-up arrangements with MasterCard and Diners Club,
Inc. (DCI), respectively. In 2016, SBCC sold a substantial portion of its existing DCI portfolio and
cardholder base. As of December 31, 2017, no outstanding receivable arising from DCI credit cards
is included as ‘Loans and Receivables’.
The Group may irrevocably elect at initial recognition to classify a debt financial asset that meets the
amortized cost criteria above as at FVTPL if that designation eliminates or significantly reduces an
accounting mismatch had the debt financial asset been measured at amortized cost.
As of December 31, 2017 and 2016, the Group has not made such designation.
Financial assets at FVTPL

Debt financial assets that do not meet the amortized cost criteria, or that meet the criteria but the
Group has chosen to designate as at FVTPL at initial recognition, are measured at fair value through
profit or loss.
Equity investments are classified as at FVTPL, unless the Group designates an investment that is not
held for trading as at FVTOCI at initial recognition.
A financial asset is held for trading if:
∂ it has been acquired principally for the purpose of selling it in the near term; or
∂ on initial recognition it is part of a portfolio of identified financial instruments that the Group
manages together and has evidence of a recent actual pattern of short-term profit-taking; or
∂ it is a derivative that is not designated and effective as a hedging instrument or a financial
guarantee.
The Group’s financial assets at FVTPL include government securities, private bonds and equity
securities held for trading purposes, debt and hybrid instruments that do not meet the amortized cost
criteria, and equity investments not designated as at FVTOCI.
As of December 31, 2017 and 2016, the Group has not designated any debt instrument that meets the
amortized cost criteria as at FVTPL.
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Financial assets at FVTPL are carried at fair value and gains and losses on these instruments are
recognized as ‘Trading and securities gain - net’ in the statement of income. Interest earned on these
investments is reported in the statement of income under ‘Interest income’ while dividend income is
reported in the statement of income under ‘Miscellaneous income’ when the right of payment has
been established. Quoted market prices, when available, are used to determine the fair value of these
financial instruments. If a financial asset at FVTPL has a bid and ask price, the price within the bid-
ask spread that is most representative of fair value in the circumstances shall be used to measure fair
value. If quoted market prices are not available, their fair values are estimated based on market
observable inputs. For all other financial instruments not listed in an active market, the fair value is
determined by using appropriate valuation techniques.
The fair value of financial assets denominated in a foreign currency is determined in that foreign
currency and translated at the Philippine Dealing System (PDS) closing rate at the statements of
financial position date. The foreign exchange component forms part of its fair value gain or loss. For
financial assets classified as at FVTPL, the foreign exchange component is recognized in the
statement of income. For financial assets designated as at FVTOCI, any foreign exchange component
is recognized in OCI. For foreign currency-denominated debt instruments classified as at amortized
cost, the foreign exchange gains and losses are determined based on the amortized cost of the asset
and are recognized in the statement of income.
Financial assets at FVTOCI

At initial recognition, the Group can make an irrevocable election (on an instrument-by-instrument
basis) to designate equity investments as at FVTOCI. Designation as at FVTOCI is not permitted if
the equity investment is held for trading.
Equity investments as at FVTOCI are initially measured at fair value plus transaction costs.
Subsequently, they are measured at fair value, with no deduction for sale or disposal costs. Gains and
losses arising from changes in fair value are recognized in other comprehensive income and
accumulated in ‘Net unrealized gain on financial assets at FVTOCI’ in the statements of financial
position. Where the asset is disposed of, the cumulative gain or loss previously recognized in ‘Net
unrealized gain on financial assets at FVTOCI’ is not reclassified to profit or loss, but is reclassified
to ‘Surplus’.
As of December 31, 2017 and 2016, the Group has designated certain equity instruments that are not
held for trading as at FVTOCI on initial application of PFRS 9 (see Note 10).
Dividends earned on holding these equity instruments are recognized in the statement of income
when the Group’s right to receive the dividends is established in accordance with PAS 18, Revenue,
unless the dividends clearly represent recovery of a part of the cost of the investment. Dividends
earned are recognized under ‘Miscellaneous income’ in the statement of income.
Derivative instruments
The Parent Company uses derivative instruments such as cross-currency swaps, interest rate swaps,
foreign currency forward contracts, options on foreign currencies and bonds, warrants and interest
rate futures. These derivatives are entered into as a service to customers and as a means for reducing
or managing the Parent Company’s respective foreign exchange and interest rate exposures, as well
as for trading purposes. Such derivative instruments are initially recorded at fair value and carried as
financial assets at FVTPL when their fair value is positive and as financial liabilities at FVTPL when
their fair value is negative.
*SGVFS027055*
-9-
Any gains or losses arising from changes in fair value of derivative instruments (except for foreign
currency forwards) are recognized as ‘Trading and securities gain - net’. For foreign currency
forwards, changes in fair value are recognized in ‘Foreign exchange gain - net’ in the statement of
income.
Interest income is recognized in the statement of income if the “receive leg” is higher than the “pay
leg” of interest-earning derivatives. Interest expense is recognized in the statement of income if the
“pay leg” is higher than the “receive leg” of interest-bearing derivatives.
Derivatives embedded in non-derivative host contracts that are not financial assets within the scope of
PFRS 9 (2010) (e.g., financial liabilities and non-financial host contracts) are treated as separate
derivatives when their risks and characteristics are not closely related to those of the host contracts
and the host contracts are not measured at FVTPL.
The Group assesses the existence of an embedded derivative on the date it first becomes a party to the
contract, and performs re-assessment only where there is a change to the contract that significantly
modifies the contractual cash flows.
As of December 31, 2017 and 2016, the Parent Company’s hybrid financial instruments are classified
as at FVTPL (see Note 9).
Reclassification of financial assets

The Group can reclassify financial assets if the objective of its business model for managing those
financial assets changes. The Group is required to reclassify the following financial assets:
∂ from amortized cost to FVTPL if the objective of the business model changes so that the
amortized cost criteria are no longer met; and
∂ from FVTPL to amortized cost if the objective of the business model changes so that the
amortized cost criteria start to be met and the instrument’s contractual cash flows meet the
amortized cost criteria.
Reclassification of financial assets designated as at FVTPL or equity financial assets at FVTOCI at

initial recognition is not permitted.
A change in the objective of the Group's business model must be effected before the reclassification
date. The reclassification date is the beginning of the next reporting period following the change in
the business model.
Impairment of Financial Assets

The Group assesses at each statements of financial position date whether there is any objective
evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group
of financial assets is deemed to be impaired, if and only if, there is objective evidence as a result of
one or more events that had occurred after the initial recognition of the asset and that loss event has
an impact on the estimated future cash flows of the financial asset or the group of financial assets that
can be reliably estimated. Evidence of impairment may include indications that the borrower or a
group of borrowers is experiencing significant financial difficulty, default or delinquency in interest
or principal payments, the probability that they will enter bankruptcy or other financial reorganization
and where observable data indicate that there is measurable decrease in the estimated future cash
flows, such as changes in arrears or economic conditions that correlate with defaults.
*SGVFS027055*
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a. Financial assets carried at amortized cost (other than credit card receivables and consumer
loans)
The Group first assesses whether objective evidence of impairment exists individually for
financial assets that are individually significant, or collectively for financial assets that are not
individually significant. For individually assessed financial assets, the amount of the loss is
measured as the difference between the assets’ carrying amount and the present value of
estimated future cash flows (excluding future credit losses that have not been incurred). The
present value of the estimated future cash flows is discounted at the financial asset’s original
effective interest rate (EIR). If a loan has a variable interest rate, the discount rate for measuring
any impairment loss is the current EIR. The calculation of the present value of the estimated
future cash flows of a collateralized financial asset reflects the cash flow that may result from
foreclosure less costs for obtaining and selling the collateral, whether or not foreclosure is
probable. The carrying amount of the asset is reduced through the use of an allowance account
and the amount of loss is recognized in ‘Provision for credit losses’ in the statement of income.
Interest income continues to be recognized based on the original EIR of the asset. Loans and
receivables, together with the associated allowance accounts, are written off when there is no
realistic prospect of future recovery and all collateral has been realized. If, in a subsequent year,
the amount of the impairment loss increases or decreases because of an event occurring after the
impairment was recognized, the previously recognized impairment loss is increased or reduced by
adjusting the allowance account. If a future write off is later recovered, the recovery is credited
to ‘Recovery of charged-off assets’ in the statement of income.
If the Group determines that no objective evidence of impairment exists for an individually
assessed financial asset, whether significant or not, the asset is included in a group of financial
assets with similar credit risk characteristics and that group of financial assets is collectively
assessed for impairment. Assets that are individually assessed for impairment and for which an
impairment loss is or continues to be recognized are not included in a collective assessment of
impairment.
For the purpose of a collective assessment of impairment, financial assets are grouped on the
basis of the industry of the borrower. Future cash flows on a group of financial assets that are
collectively assessed for impairment are estimated on the basis of historical loss experience for
the assets with credit risk characteristics similar to those in the group. Historical loss experience
is adjusted on the basis of current observable data to reflect the effects of current conditions on
which the historical loss experience is based and to remove the effects of conditions in the
historical period that do not exist currently. Estimates of changes in future cash flows reflect, and
are directionally consistent with, changes in related observable data from year to year. The
methodology and assumptions used for estimating future cash flows are reviewed regularly to
reduce any differences between loss estimates and actual loss experience.
b. Consumer loans and credit card receivables

The Group’s consumer loans and receivables from credit cardholders are assessed for impairment
collectively because these receivables are not individually significant. The allowance for credit
losses is determined based on the results of the net flow to write-off methodology. Net flow
tables are derived from account-level monitoring of monthly peso movements between different
age buckets, from 1 day past due to 180 days past due. The net flow to write-off methodology
relies on the historical data of net flow tables to establish a percentage (‘net flow rate’) of
receivables that are current or in any state of delinquency (i.e., 30, 60, 90, 120, 150 and 180 days
past due) as of reporting date that will eventually result in write-off. The gross provision is then
computed based on the outstanding balances of these receivables from credit cardholders and
consumer loans as of the statements of financial position date and the net flow rates determined
*SGVFS027055*
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for the current and each delinquency bucket. The carrying amounts of receivables from consumer
loans and credit cardholders are reduced for impairment through the use of an allowance account.
c. Restructured loans
Where possible, the Group seeks to restructure loans rather than to take possession of collateral.
This may involve extending the payment arrangements and the agreement of new loan conditions.
Once the terms have been renegotiated, the loan is no longer considered as past due.
Management continuously reviews restructured loans to ensure that all criteria are met and that
future payments are likely to occur. The loan continues to be subject to an individual impairment
calculated using the original EIR or collective impairment.
Financial Liabilities
Financial liabilities at FVTPL
Financial liabilities are classified as at FVTPL when the financial liability is either held for trading or
it is designated as at FVTPL.
Financial liabilities held for trading include:
∂ derivative liabilities that are not accounted for as hedging instruments;

∂ obligations to deliver financial assets borrowed by a short seller (i.e., an entity that sells financial
assets it has borrowed and does not yet own);
∂ financial liabilities that are incurred with an intention to repurchase them in the near term (e.g., a
quoted debt instrument that the issuer may buy back in the near term depending on changes in its
fair value ); and
∂ financial liabilities that are part of a portfolio of identified financial instruments that are managed
together and for which there is evidence of a recent pattern of short-term profit-taking.
Management may designate a financial liability as at FVTPL upon initial recognition when the
following criteria are met, and designation is determined on an instrument-by-instrument basis:
∂ The designation eliminates or significantly reduces the inconsistent treatment that would
otherwise arise from measuring the liabilities or recognizing gains or losses on them on a
different basis; or
∂ The liabilities are part of a group of financial liabilities which are managed and their performance
evaluated on a fair value basis, in accordance with a documented risk management or investment
strategy; or
∂ The financial instrument contains an embedded derivative, unless the embedded derivative does
not significantly modify the cash flows or it is clear, with little or no analysis, that it would not be
separately recorded.
Financial liabilities at FVTPL are recorded in the statements of financial position at fair value.
Changes in fair value of financial instruments are recorded in ‘Trading and securities gain - net’ in the
statement of income. Interests incurred are recorded in ‘Interest expense’ in the statement of income.
Bills payable and other borrowed funds

Bills payable and other borrowed funds are issued financial instruments or their components, which
are not financial liabilities at FVTPL. They are classified as such when the substance of the
contractual arrangement results in the Group having an obligation either to deliver cash or another
financial asset to the holder, or to satisfy the obligation other than by the exchange of a fixed amount
of cash or another financial asset for a fixed number of own equity shares.
*SGVFS027055*
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After initial measurement, bills payable and similar financial liabilities not qualified as and not
recognized as financial liabilities at FVTPL, are subsequently measured at amortized cost using the
effective interest method. Amortized cost is calculated by taking into account any discount or
premium on the issue and fees that are an integral part of the EIR.
Derecognition of Financial Assets and Liabilities

Financial assets
A financial asset (or, where applicable a part of a financial asset or part of a group of financial assets)
is derecognized when:
∂ the rights to receive cash flows from the asset have expired; or
∂ the Group retains the right to receive cash flows from the asset, but has assumed an obligation to
pay them in full without material delay to a third party under a pass-through arrangement; or
∂ the Group has transferred its rights to receive cash flows from the asset and either (a) has
transferred substantially all the risks and rewards of the asset, or (b) has neither transferred nor
retained the risks and rewards of the asset, but has transferred control over the asset.
Where the Group has transferred its rights to receive cash flows from an asset or has entered into a
pass-through arrangement, and has neither transferred nor retained substantially all the risks and
rewards of the asset nor transferred control over the asset, the asset is recognized to the extent of the
Group’s continuing involvement in the asset. Continuing involvement that takes the form of a
guarantee over the transferred asset is measured at the lower of original carrying amount of the asset
and the maximum amount of consideration that the Group could be required to repay.
Financial liabilities
A financial liability is derecognized when the obligation under the liability is discharged, cancelled or
has expired. When an existing financial liability is replaced by another from the same lender on
substantially different terms, or the terms of an existing liability are substantially modified, such an
exchange or modification is treated as a derecognition of the original liability and the recognition of a
new liability, and the difference in the respective carrying amounts is recognized in the statement of
income.
Financial Guarantees
In the ordinary course of business, the Parent Company gives financial guarantees. Financial
guarantees are initially recognized in the financial statements at fair value, and the initial fair value is
amortized over the life of the financial guarantee. The guarantee liability is subsequently carried at
the higher of the amortized amount and the present value of any expected payment (when a payment
under the guaranty has become probable).
Hedge Accounting
The Parent Company makes use of derivative instruments to manage exposures to interest rate risks,
and applies hedge accounting for transactions which meet specified criteria.
At inception of the hedge relationship, the Parent Company formally designates and documents the
relationship between the hedged item and the hedging instrument, including the nature of the risk
being hedged, the objective and strategy for undertaking the hedge, and the method that will be used
to assess the effectiveness of the hedging relationship. Also, a formal assessment is undertaken to
ensure that the hedging instrument is expected to be highly effective in offsetting the designated risk
in the hedged item. Hedges are formally assessed each quarter. A hedge is expected to be highly
effective if the cumulative change in the fair value of the hedging instrument during the period is
expected to offset the cumulative change in the fair value attributable to the hedged risk of the hedged
item by 80.0% to 125.0%.
*SGVFS027055*
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Fair value hedges

For designated and qualifying fair value hedges, the change in the fair value of a hedging derivative is
recognized under ‘Trading and securities gain - net’ in the statement of income. Meanwhile, the
change in the fair value of the hedged item attributable to the hedged risk is recorded as part of the
carrying value of the hedged item and is also recognized in ‘Trading and securities gain - net’ in the
statement of income.
Interest income is recognized in the statement of income when the “receive leg” is higher than the
“pay leg”of interest-earning derivatives designated as effective hedging instruments. Interest expense
is recognized in the statement of income when the “pay leg” is higher than the “receive leg” of
interest-bearing derivatives designated as effective hedging instruments.
If the hedging instrument expires or is sold, terminated or exercised, or where the hedge no longer
meets the criteria for hedge accounting, the hedge relationship is terminated. For hedged items
recorded at amortized cost, the difference between the carrying value of the hedged item on
termination and the face value is amortized over the remaining term of the hedged item using the
effective interest method. If the hedged item is derecognized, the unamortized fair value adjustment
is recognized immediately in the statement of income.
As of December 31, 2016, the Parent Company has outstanding interest rate swaps designated as
effective hedging instruments in a fair value hedge (see Note 19).
Offsetting of Financial Instruments

Financial assets and liabilities are offset and the net amount is reported in the statements of financial
position, if and only if, there is a currently enforceable legal right to offset the recognized amounts
and there is an intention to either settle on a net basis, or to realize the asset and settle the liability
simultaneously. This is not generally the case with master netting agreements, therefore, the related
assets and liabilities are presented gross in the statements of financial position.
Cash and Cash Equivalents

For purposes of reporting cash flows, cash and cash equivalents consist of ‘COCI’, ‘Due from BSP’
and ‘Due from other banks’ that are convertible to known amounts of cash, with original maturities of
three months or less from dates of placements and that are subject to insignificant risk of changes in
value. ‘Due from BSP’ includes the statutory reserves required by the BSP which the Parent
Company considers as cash equivalents wherein drawings can be made to meet cash requirements.
Repurchase and Reverse Repurchase Agreements

Securities sold under agreements to repurchase at a specified future date (‘repos’) are not
derecognized from the statements of financial position. The corresponding cash received, including
accrued interest, is recognized in the statements of financial position as ‘Securities sold under
repurchase agreements (SSURA)’, reflecting the economic substance of such transaction.
Conversely, securities purchased under agreements to resell at a specified future date (‘reverse repos’)
are not recognized in the statements of financial position. The corresponding cash paid, including
accrued interest, is recognized in the statements of financial position as SPURA, and is considered a
loan to the counterparty. The difference between the purchase price and resale price is treated as
interest income and is accrued over the life of the agreement using the effective interest method.
*SGVFS027055*
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Foreign Currency Translation

Transactions and balances
For financial reporting purposes, the foreign currency-denominated assets and liabilities in the RBU
are translated into their equivalents in Philippine pesos based on the PDS closing rate prevailing at the
statements of financial position date and foreign currency-denominated income and expenses, at the
prevailing exchange rate at the date of transaction. Foreign exchange differences arising from
revaluation and translation of foreign-currency denominated assets and liabilities are credited to or
charged against operations in the year in which the rates change.
Non-monetary items that are measured in terms of historical cost in a foreign currency are translated
using the exchange rates as at the dates of the initial transactions. Non-monetary items measured at
fair value in a foreign currency are translated using the exchange rates at the date when the fair value
is determined.
FCDU
As at the reporting date, the assets and liabilities of the FCDU of the Parent Company and SBS are
translated into the Parent Company’s presentation currency (the Philippine Peso) at PDS closing rate
prevailing at the statements of financial position date, and its income and expenses are translated at
PDS weighted average rate (PDSWAR) for the year. Exchange differences arising on translation to
the presentation currency are taken to the statement of comprehensive income under ‘Cumulative
translation adjustment’. Upon disposal of the FCDU or upon actual remittance of FCDU profits to
RBU, the deferred cumulative amount recognized in the statement of comprehensive income is
recognized in the statement of income.
Investments in Subsidiaries and a Joint Venture

Investment in subsidiaries
Subsidiaries pertain to all entities over which the Group has control.
Interest in a joint venture

A joint venture is a type of joint arrangement where the parties that have joint control of the
arrangement have rights to the net assets of the joint venture. Joint control is the contractually agreed
sharing of control of an arrangement, which exists only when decisions about the relevant activities
require unanimous consent of the parties sharing control. The Group’s investment in a joint venture
represents its 60.0% interest in SBM Leasing, Inc. (SBML).
The considerations made in determining joint control are similar to those necessary to determine
control over subsidiaries.
The Group and the Parent Company’s investment in its subsidiaries and joint venture are accounted
for using the equity method. Under the equity method, the investment in a subsidiary and/or joint
venture is initially recognized at cost. The carrying amount of the investment is adjusted to recognize
changes in the Group and the Parent Company’s share of net assets of the subsidiary and/or joint
venture since the acquisition date. Goodwill relating to the subsidiary and/or joint venture is included
in the carrying amount of the investment and is neither amortized nor individually tested for
impairment.
The statement of income reflects the Group and the Parent Company’s share of the results of
operations of the subsidiary and/or joint venture. Any change in OCI of the investee is presented as
part of the Group and the Parent Company’s OCI. In addition, when there has been a change
recognized directly in the equity of the subsidiary and/or joint venture, the Group and the Parent
Company recognizes its share of any changes, when applicable, in the statements of changes in
*SGVFS027055*
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equity. Unrealized gains and losses resulting from transactions between the Group and the joint
venture are eliminated to the extent of the interest in the joint venture.
The aggregate of the Group’s share of profit or loss of a subsidiary and joint venture is shown on the
face of the statement of income under ‘Share in net income of subsidiaries and a joint venture’ and
represents profit or loss after tax and non-controlling interests in the subsidiaries and the joint
venture.
The financial statements of the subsidiaries and joint venture are prepared for the same reporting
period as the Group. When necessary, adjustments are made to bring the accounting policies in line
with those of the Group.
After application of the equity method, the Group and the Parent Company determine whether it is
necessary to recognize an impairment loss on its investment in subsidiaries and joint venture. At each
statements of financial position date, the Group and the Parent Company determines whether there is
objective evidence that the investment in subsidiaries and joint venture is impaired. If there is such
evidence, the Group and the Parent Company calculate the amount of impairment as the difference
between the recoverable amount of the subsidiaries and joint venture and their carrying value, then
recognizes the loss in the statement of income.
Upon loss of joint control over the subsidiary and/or joint venture, the Group and the Parent Company
measures and recognizes any retained investment at its fair value. Any difference between the
carrying amount of the joint venture upon loss of joint control and the fair value of the retained
investment and proceeds from disposal is recognized in the statement of income.
Interest in a joint operation

A joint operation involves the use of assets and other resources of the Group and other venturers
rather than the establishment of a corporation, partnership or other entity. The Group accounts for the
assets it controls and the liabilities and expenses it incurs, and the share of the income that it earns
from the sale of goods, properties or services by the joint operation. The assets contributed to the
joint venture are measured at the lower of cost or net realizable value. Net realizable value is the
estimated selling price in the ordinary course of business less estimated costs necessary to make the
sale.
Transfer of business from subsidiary to the Parent

The Parent Company accounts for the transfer as if it has effectively received a distribution that it
accounts for at the fair value of the business received. Any excess in the fair value of the net assets
received over the consideration is recognized in the statement of income. This reflects the assets
acquired and liabilities assumed at their fair value, including goodwill, which will be measured as at
the date of the transfer. These transfers have no effect on the consolidated financial statements.
Property and Equipment

Land is stated at cost less any impairment in value. Depreciable properties including building and
improvements, furniture, fixtures and equipment, transportation equipment and leasehold
improvements are stated at cost less accumulated depreciation and amortization, and any impairment
in value.
The initial cost of property and equipment consists of its purchase price, including import duties,
taxes and any directly attributable costs of bringing the asset to its working condition and location for
its intended use. Expenditures incurred after the property and equipment have been put into
operation, such as repairs and maintenance are charged against operations in the year in which the
costs are incurred. In situations where it can be clearly demonstrated that the expenditures have
*SGVFS027055*
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resulted in an increase in the future economic benefits expected to be obtained from the use of an item
of property and equipment beyond its originally assessed standard of performance, the expenditures
are capitalized as an additional cost of property and equipment. When assets are retired or otherwise
disposed of, the cost and the related accumulated depreciation and amortization and any impairment
in value are removed from the accounts, and any resulting gain or loss is reflected as income or loss
in the statement of income.
Depreciation is computed using the straight-line method based on the estimated useful life (EUL) of
the depreciable assets. The range of EUL of property and equipment follows:
Years
Building 20
Furniture, fixtures and equipment 1-10
Transportation equipment 5-10
Leasehold improvements 5-15
Leasehold improvements are amortized over the applicable EUL of the improvements or the terms of
the related leases, whichever is shorter.
The EUL and the depreciation and amortization method are reviewed periodically to ensure that the
period and the method of depreciation and amortization are consistent with the expected pattern of
economic benefits from items of property and equipment.
The carrying values of property and equipment are reviewed for impairment when events or changes
in circumstances indicate the carrying value may not be recoverable. If any such indication exists and
where the carrying values exceed the estimated recoverable amount, the assets are written down to
their recoverable amounts (see accounting policy on Impairment of Non-financial Assets).
Investment Properties
Investment properties are measured initially at cost including transaction costs. An investment
property acquired through an exchange transaction is measured at fair value of the asset acquired
unless the fair value of such an asset cannot be measured in which case the investment property
acquired is measured at the carrying amount of asset given up. Any gain or loss on exchange is
recognized in the statement of income. Foreclosed properties are classified under ‘Investment
properties’ upon:
∂ entry of judgment in case of judicial foreclosure;

∂ execution of the Sheriff’s Certificate of Sale in case of extra-judicial foreclosure; or
∂ notarization of the Deed of Dacion in case of payment in kind (dacion en pago).
Real properties acquired

Depreciable real properties acquired are carried at cost, which is the fair value at acquisition date, less
accumulated depreciation and any impairment in value. Land is carried at cost less any impairment in
value. Transaction costs, which include non-refundable capital gains tax and documentary stamp tax,
incurred in connection with foreclosure are capitalized as part of the cost of the real properties
acquired.
The Group applies the cost model in accounting for investment properties. Depreciation is computed
on a straight-line basis over the EUL of 10 years. The EUL and the depreciation method are
reviewed periodically to ensure that the period and the method of depreciation are consistent with the
expected pattern of economic benefits from items of real properties acquired.
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The carrying values of the real properties acquired are reviewed for impairment when events or
changes in circumstances indicate that the carrying value may not be recoverable. If any such
indication exists and where the carrying value exceeds the estimated recoverable amount, the assets
are written down to their recoverable amounts (see accounting policy on Impairment of Non-financial
Assets).
Investments in real estate

Investments in real estate consist of investments in land and building. Investments in land are carried
at cost less impairment in value. Building is carried at cost less accumulated depreciation and
impairment in value. All costs that are directly attributable to the acquisition and development of
property are capitalized, including borrowing costs incurred to finance the property development.
Depreciation is computed on a straight-line basis over 10-15 years.
Investment properties are derecognized when they have either been disposed of or when they are
permanently withdrawn from use and no future economic benefit is expected from its disposal. Any
gains or losses on retirement or disposal of investment properties are recognized in the statement of
income in the year of retirement or disposal as ‘Profit from assets sold/exchanged’.
Other Properties Acquired

Other properties acquired include chattel mortgage properties acquired in settlement of loan
receivables. The Group applies the cost model in accounting for other properties acquired. Under the
cost model, these assets are carried at cost, which is the fair value at acquisition date, less
accumulated depreciation and any impairment in value.
Depreciation is computed on a straight-line basis over the EUL of 3 years. The EUL and the
depreciation method are reviewed periodically to ensure that the period and the method of
depreciation are consistent with the expected pattern of economic benefits from items of other
properties acquired.
The carrying values of the other properties acquired are reviewed for impairment when events or
changes in circumstances indicate that the carrying value may not be recoverable. If any such
indication exists and where the carrying values exceed the estimated recoverable amount, the assets
are written down to their recoverable amounts (see accounting policy on Impairment of Non-financial
Assets).
An item of other properties acquired is derecognized upon disposal or when no future economic
benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset
(calculated as the difference between the net disposal proceeds and the carrying amount of the asset)
is included in the statement of income as ‘Profit from assets sold/exchanged’ in the year the asset is
derecognized.
Intangible Assets
Intangible assets consist of software costs, exchange trading right and branch licenses. An intangible
asset is recognized only when its cost can be measured reliably and it is probable that the expected
future economic benefits that are attributable to it will flow to the Group.
Software costs
Costs related to software purchased by the Group for use in operations are amortized on a straight-
line basis over 3 to 5 years. The amortization period and the amortization method for software cost
are reviewed periodically to be consistent with the changes in the expected useful life or the expected
pattern of consumption of future economic benefits embodied in the asset. The amortization expense
on software costs is recognized in the statement of income.
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Exchange trading right

The exchange trading right of SBEI is an intangible asset regarded as having an indefinite useful life
as there is no foreseeable limit to the period over which this asset is expected to generate cash
inflows. It is carried at the amount allocated from the original cost of the exchange membership seat
(after a corresponding allocation was made to the value of the Philippine Stock Exchange shares) less
impairment in value. SBEI does not intend to sell the exchange trading right in the near future.
Branch licenses
Branch licenses have been acquired and granted by the BSP, and capitalized on the basis of the cost
incurred to acquire and bring to use in operation.
The carrying values of intangible assets with definite useful lives are reviewed for impairment when
events or changes in circumstances indicate that the carrying value may not be recoverable. If any
such indication exists and where the carrying values exceed the estimated recoverable amount, the
assets are written down to their recoverable amounts (see accounting policy on Impairment of Non-
financial Assets).
Business Combinations
Business combinations are accounted for using the acquisition method. The cost of an acquisition is
measured as the aggregate of the consideration transferred, measured at acquisition date fair value and
the amount of any non-controlling interest in the acquiree. For each business combination, the
acquirer measures the non-controlling interest in the acquiree either at fair value or at the
proportionate share of the acquiree’s identifiable net assets. Acquisition costs incurred are expensed
and included in ‘Miscellaneous expense’ in the statement of income.
When the Group acquires a business, it assesses the financial assets and liabilities assumed for
appropriate classification and designation in accordance with the contractual terms, economic
circumstances and pertinent conditions as at the acquisition date. This includes the separation of
embedded derivatives in host contracts by the acquiree.
If the business combination is achieved in stages, the acquisition date fair value of the acquirer’s
previously held equity interest in the acquiree is remeasured to fair value at the acquisition date
through profit or loss.
Any contingent consideration to be transferred by the acquirer will be recognized at fair value at the
acquisition date. Contingent consideration classified as an asset or liability that is a financial
instrument and is within the scope of PAS 39 is measured at fair value with changes in fair value
either in profit or loss or as a change to OCI. If the contingent consideration is not within the scope
of PAS 39, it is measured in accordance with the appropriate PFRS. Contingent consideration that is
classified as equity is not remeasured and subsequent settlement is accounted for within equity.
Goodwill
Goodwill is initially measured at cost, being the excess of the aggregate of fair value of the
consideration transferred and the amount recognized for non-controlling interest over the net
identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value
of the net assets of the subsidiary acquired, the Group assesses whether it has correctly identified all
of the assets acquired and all of the liabilities assumed and reviews the procedures used to measure
the amounts to be recognized at the acquisition date. If the reassessment still results in an excess of
the fair value of assets acquired over the aggregate consideration transferred, then the gain is
recognized in statement of income.
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Following initial recognition, goodwill is measured at cost less any accumulated impairment losses.
Goodwill is reviewed for impairment annually, or more frequently, if events or changes in
circumstances indicate that the carrying value may be impaired. For the purpose of impairment
testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of
the Group’s CGUs or a group of CGUs, which are expected to benefit from the synergies of the
combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those
units. Each unit to which the goodwill is allocated represents the lowest level within the Group at
which the goodwill is monitored for internal management purposes, and is not larger than an
operating segment in accordance with PFRS 8.
Where goodwill has been allocated to a CGU (or group of CGUs) and part of the operation within
that unit is disposed of, the goodwill associated with the disposed operation is included in the carrying
amount of the operation when determining the gain or loss on disposal. Goodwill disposed of in these
circumstance is measured based on the relative values of the disposed operation and the portion of the
CGU retained.
When an entity reorganizes its reporting structure in a way that changes the composition of one or
more cash-generating units to which goodwill has been allocated, the goodwill shall be reallocated to
the units affected. This reallocation shall be performed using a relative value approach similar to that
used when an entity disposes of an operation within a cash-generating unit, unless the entity can
demonstrate that some other method better reflects the goodwill associated with the reorganized units.
When subsidiaries are sold, the difference between the selling price and the net assets plus cumulative
translation differences and goodwill is recognized in the statement of income.
Impairment of Non-financial Assets

Non-financial assets include property and equipment, investment properties, investment in
subsidiaries and a joint venture, software costs, goodwill, exchange trading right, branch licenses and
other properties acquired.
Property and equipment, investments in subsidiaries and a joint venture, investment properties, and
other properties acquired
The Group assesses at each statements of financial position date whether there is any indication that
an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is
required, the Group estimates the asset’s recoverable amount. An asset’s recoverable amount is the
higher of an asset’s or CGU’s fair value less cost to sell and its value in use (VIU). Where the
carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired
and is written down to its recoverable amount. In assessing VIU, the estimated future cash flows are
discounted to their present value using a pre-tax discount rate that reflects current market assessments
of the time value of money and the risks specific to the asset. In determining fair value less costs to
sell, an appropriate valuation model is used. These calculations are corroborated by valuation
multiples or other available fair value indicators. Any impairment loss is charged to operations in the
year in which it arises.
An assessment is made at each statements of financial position date as to whether there is any
indication that previously recognized impairment losses may no longer exist or may have decreased.
If such indication exists, the Group estimates the asset’s or CGU’s recoverable amount. A previously
recognized impairment loss is reversed only if there has been a change in the assumptions used to
determine the asset’s recoverable amount since the last impairment loss was recognized. The reversal
is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor
exceeds the carrying amount that would have been determined, net of depreciation, had no
impairment loss been recognized for the asset in prior years. Such reversal is recognized in the
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statement of income. After such a reversal, the depreciation expense is adjusted in future years to
allocate the asset’s revised carrying amount, less any residual value, on a systematic basis over its
remaining life.
Intangible assets - branch licenses, exchange trading right and software costs
Intangible assets with indefinite useful lives are tested for impairment annually at each statements of
financial position date either individually or at the cash generating unit level, as appropriate or when
circumstances indicate that the intangible asset may be impaired. Intangible assets with finite lives
are assessed for impairment whenever there is an indication that the intangible asset may be impaired.
Goodwill
Goodwill is reviewed for impairment annually or more frequently if events or changes in
circumstances indicate that the carrying value may be impaired.
Impairment is determined for goodwill by assessing the recoverable amount of the CGU (or group of
CGUs) to which the goodwill relates. Where the recoverable amount of the CGU (or group of CGUs)
is less than the carrying amount of the CGU (or group of CGUs) to which goodwill has been
allocated, an impairment loss is recognized immediately in the statement of income. Impairment
losses relating to goodwill cannot be reversed for subsequent increases in its recoverable amount in
future periods.
Income Taxes
Current income tax
Current income tax assets and liabilities for the current periods are measured at the amount expected
to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute
the amount are those that are enacted or substantively enacted at the statements of financial position
date.
Deferred tax
Deferred tax is provided on all temporary differences at the statements of financial position date
between the tax bases of assets and liabilities and their carrying amounts for financial reporting
purposes.
Deferred tax liabilities are recognized for all taxable temporary differences, except:
∂ Where the deferred tax liability arises from the initial recognition of goodwill or of an asset or
liability in a transaction that is not a business combination and, at the time of the transaction,
affects neither the accounting income nor taxable income; and
∂ In respect of taxable temporary differences associated with investments in subsidiaries, where the
timing of the reversal of the temporary differences can be controlled and it is probable that the
temporary differences will not reverse in the foreseeable future.
Deferred tax assets are recognized for all deductible temporary differences, carryforward of unused
tax credits from excess minimum corporate income tax (MCIT) over regular corporate income tax
(RCIT) and unused net operating loss carryover (NOLCO), to the extent that it is probable that future
taxable income will be available against which the deductible temporary differences and carryforward
of unused MCIT and unused NOLCO can be utilized except:
∂ Where the deferred tax asset relating to the deductible temporary difference arises from the initial
recognition of an asset or liability in a transaction that is not a business combination and, at the
time of the transaction, affects neither the accounting income nor taxable income; and
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∂ In respect of deductible temporary differences associated with investments in subsidiaries,

deferred tax assets are recognized only to the extent that it is probable that the temporary
differences will reverse in the foreseeable future and taxable income will be available against
which the temporary differences can be utilized.
The carrying amount of deferred tax assets is reviewed at each statements of financial position date
and reduced to the extent that it is no longer probable that sufficient future taxable income will be
available to allow all or part of the deferred tax assets to be utilized. Unrecognized deferred tax assets
are reassessed at each statements of financial position date and are recognized to the extent that it has
become probable that future taxable income will allow the deferred tax asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are applicable to the period when
the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted
or substantively enacted at the statements of financial position date.
Deferred tax relating to items recognized outside profit or loss is recognized outside profit or loss.
Deferred tax items are recognized in correlation to the underlying transaction either in OCI or directly
in equity.
Deferred tax assets and liabilities are offset if a legally enforceable right exists to set off current tax
assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the
same taxation authority.
Revenue Recognition
The Group assesses its revenue arrangements against specific criteria in order to determine if it is
acting as principal or agent. Revenue is recognized to the extent that it is probable that the economic
benefits will flow to the Group and the revenue can be reliably measured, regardless when payment is
being made. The Group has concluded that it is acting as principal in all of its revenue arrangements.
The following specific recognition criteria must also be met before revenue is recognized:
Interest income
Interest on financial instruments measured at amortized cost and interest-bearing financial assets at
FVTPL and Held-for-Trading (HFT) investments are recognized based on the effective interest
method of accounting.
The effective interest method is a method of calculating the amortized cost of a financial asset or a
financial liability and allocating the interest income or interest expense over the relevant period.
The EIR is the rate that exactly discounts estimated future cash payments or receipts throughout the
expected life of the financial instrument or, when appropriate, a shorter period to the net carrying
amount of the financial asset or financial liability. When calculating the EIR, the Group estimates
cash flows from the financial instrument (e.g., prepayment options) but does not consider future
credit losses. The calculation includes all fees and points paid or received between parties to the
contract that are an integral part of the EIR, transaction costs and all other premiums or discounts.
Once a financial asset or a group of similar financial assets has been written down as a result of an
impairment loss, interest income is recognized thereafter using the rate of interest used to discount the
future cash flows for the purpose of measuring the impairment loss.
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Service charges and penalties

Service charges and penalties are recognized only upon collection or accrued when there is
reasonable degree of certainty as to its collectibility.
Fees and commissions

a. Fee income earned from services that are provided over a certain period of time
Fees earned for the provision of services over a period of time are accrued over that period. Loan
commitment fees are recognized as earned over the term of the credit lines granted to each
borrower. However, loan commitment fees for loans that are likely to be drawn are deferred
(together with any incremental costs) and recognized as an adjustment to the EIR on the loan.
Fees received in connection with the issuance of credit cards are deferred and amortized on a
straight-line basis over the period the cardholder is entitled to use the card.
b. Bancassurance fees
Non-refundable access fees are recognized on a straight-line basis over the term of the period of
the provision of the access.
Refundable access fees and milestone fees are recognized in reference to the stage of achievement
of the milestones.
c. Fee income from providing transaction services

Fees arising from negotiating or participating in the negotiation of a transaction for a third party,
such as underwriting fees, corporate finance fees, and brokerage fees for the arrangement of the
acquisition of shares or other securities or the purchase or sale of businesses, are recognized on
completion of the underlying transaction. Fees or components of fees that are linked to a certain
performance are recognized after fulfilling the corresponding criteria. Loan syndication fees are
recognized in the statement of income when the syndication has been completed and the Group
retains no part of the loans for itself or retains part at the same EIR as for the other participants.
Trading and securities gain - net

Results arising from trading activities include all gains and losses from changes in fair value of
financial assets and financial liabilities at FVTPL, derivatives, gains and losses from disposal of
investment securities at amortized cost and any ineffectiveness recognized on accounting hedges.
Costs of investment securities sold are determined using the weighted average cost method.
Dividend income
Dividend income is recognized when the Group’s right to receive the payment is established.
Rental income
Rental income arising on leased premises is accounted for on a straight-line basis over the lease terms
on ongoing leases.
Discounts earned and awards revenue on credit cards

Discounts received are taken up as income upon receipt from member establishments of charges
arising from credit availments by the Group’s cardholders and other credit card companies’
cardholders when the Group is acting as an acquirer. These discounts are computed based on certain
agreed rates and are deducted from the amounts remitted to the member establishments. Discounts
earned are net of service fees, which represent interchange fees charged by the other DCI issuers for
purchases made by the cardholders of the other DCI issuers in the Philippines.
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Award credits under customer loyalty programmes are accounted for as a separately identifiable
component of the transaction in which they are granted. The fair value of the consideration received
in respect of the initial sale is allocated between the award credits and the other components of the
sale. Income generated from customer loyalty programmes is recognized in ‘Service charges, fees
and commissions’ in the statement of income.
Other income
Income from the sale of services is recognized upon completion of service. Income from sale of
properties is recognized upon completion of earnings process and the collectibility of the sales price
is reasonably assured under ‘Profit from assets sold/exchanged’ in the statement of income.
Expense Recognition
Expenses are recognized when decrease in future economic benefits related to a decrease in an asset
or an increase of a liability has arisen that can be measured reliably. Expenses are recognized when
incurred.
Operating expenses
Operating expenses constitute costs which arise in the normal business operation and are recognized
when incurred.
Taxes and licenses

This includes all other taxes, local and national, including gross receipts taxes (GRT), documentary
stamp taxes, real estate taxes, licenses and permit fees and are recognized when incurred.
Pension Cost
The Parent Company and certain subsidiaries have a non-contributory defined benefit plan that
defines the amount of pension benefit that an employee will receive on retirement, usually dependent
on one or more factors such as age, years of service and compensation. The Group’s retirement cost
is determined using the projected unit credit method. The retirement cost is generally funded through
payments to a trustee-administered fund, determined by periodic actuarial calculations.
The net defined benefit liability or asset is the aggregate of the present value of the defined benefit
obligation at the end of the reporting period reduced by the fair value of plan assets (if any), adjusted
for any effect of limiting a net defined benefit asset to the asset ceiling. The asset ceiling is the
present value of any economic benefits available in the form of refunds from the plan or reductions in
future contributions to the plan.
Defined benefit costs comprise the following:
∂ Service cost
∂ Net interest on the net defined benefit liability or asset
∂ Remeasurements of net defined benefit liability or asset
Service costs which include current service costs, past service costs and gains or losses on non-
routine settlements are recognized as expense in the statement of income. Past service costs are
recognized when plan amendment or curtailment occurs. These amounts are calculated periodically
by independent qualified actuaries.
Net interest on the net defined benefit liability or asset is the change during the period in the net
defined benefit liability or asset that arises from the passage of time which is determined by applying
the discount rate based on government bonds to the net defined benefit liability or asset. Net interest
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on the net defined benefit liability or asset is recognized as interest income or expense in the
statement of income.
Remeasurements comprising actuarial gains and losses, return on plan assets and any change in the
effect of the asset ceiling (excluding net interest on defined benefit liability) are recognized
immediately in OCI in the period in which they arise and are closed to surplus at the end of the year.
Remeasurements are not reclassified to profit or loss in subsequent periods.
Plan assets are assets that are held by a long-term employee benefit fund. Plan assets are not
available to the creditors of the Group, nor can they be paid directly to the Group. Fair value of plan
assets is based on market price information. When no market price is available, the fair value of plan
assets is estimated by discounting expected future cash flows using a discount rate that reflects both
the risk associated with the plan assets and the maturity or expected disposal date of those assets (or,
if they have no maturity, the expected period until the settlement of the related obligations).
Discontinued operations
A disposal group qualifies as discontinued operations if it is a component of an entity that has either
been disposed of, or is classified as held for sale and:
∂ represents a major line of business or geographical area of operations;

∂ is part of a single coordinated plan to dispose of a separate major line of business or geographical
area of operations; or
∂ is a subsidiary acquired exclusively with a view to resale.
Discontinued operations are excluded from the results of the continuing operations in the statement of
income, statement of comprehensive income and statements of cash flows.
All other notes to the financial statements include amounts for continuing operations, unless
otherwise mentioned.
Leases
The determination of whether an arrangement is, or contains a lease is based on the substance of the
arrangement and requires an assessment of whether the fulfillment of the arrangement is dependent
on the use of a specific asset or assets and the arrangement conveys a right to use the asset. A
reassessment is made after inception of the lease only if one of the following applies:
a. there is a change in contractual terms, other than a renewal or extension of the arrangement;
b. a renewal option is exercised or extension granted, unless that term of the renewal or extension
was initially included in the lease term;
c. there is a change in the determination of whether fulfillment is dependent on a specified asset;
or
d. there is a substantial change to the asset.
Where a reassessment is made, lease accounting shall commence or cease from the date when the
change in circumstances gave rise to the reassessment for scenarios (a), (c) or (d) above, and at the
date of renewal or extension period for scenario (b).
Group as lessee
Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are
classified as operating leases. Operating lease payments are recognized as an expense in the
statement of income on a straight-line basis over the lease term. Contingent rents are recognized as
an expense in the period in which they are incurred.
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Group as lessor
Finance leases where the Group transfers substantially all the risks and benefits incidental to the
ownership of the leased item to the lessee are included in the statements of financial position under
‘Loans and receivables’. A lease receivable is recognized at an amount equivalent to the net
investment (asset cost) in the lease. All income resulting from the receivable is included in ‘Interest
income’ in the statement of income.
Leases where the Group does not transfer substantially all the risks and benefits of ownership of the
assets are classified as operating leases. Initial direct costs incurred in negotiating operating leases
are added to the carrying amount of the leased asset and recognized over the lease term on the same
basis as the rental income. Contingent rents are recognized as revenue in the period in which they are
earned.
Provisions and Contingencies

Provisions are recognized when the Group has a present obligation (legal or constructive) as a result
of a past event and it is probable that an outflow of resources embodying economic benefits will be
required to settle the obligation and a reliable estimate can be made of the amount of the obligation.
Where the Group expects some or all of a provision to be reimbursed, for example, under an
insurance contract, the reimbursement is recognized as a separate asset but only when the
reimbursement is virtually certain. The expense relating to any provision is presented in the
statement of income, net of any reimbursement. If the effect of the time value of money is material,
provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects
current market assessments of the time value of money and, where appropriate, the risks specific to
the liability. Where discounting is used, the increase in the provision due to the passage of time is
recognized as ‘Interest expense’ in the statement of income.
Contingent liabilities are not recognized but are disclosed in the financial statements unless the
possibility of an outflow of assets embodying economic benefits is remote. Contingent assets are not
recognized but are disclosed in the financial statements when an inflow of economic benefits is
probable.
Debt Issue Costs

Issuance, underwriting and other related costs incurred in connection with the issuance of debt
instruments are deferred and amortized over the terms of the instruments using the effective interest
method. Unamortized debt issuance costs are included in the carrying amount of the debt instrument
in the statements of financial position.
Borrowing Costs
Borrowing costs directly attributable to the acquisition, construction or production of an asset that
necessary takes a substantial period of time to get ready for its intended use or sale are capitalized as
part of the cost of the asset. All other borrowing costs are recognized as expense in the year in
which these costs are incurred. Borrowing costs consist of interest expense calculated using the
effective interst method in accordance with PFRS 9 that the Group incurs in connection with
borrowing of funds.
Earnings Per Share

Basic earnings per share (EPS) is computed by dividing the net income for the year attributable to
equity holders of the Parent Company after deducting dividends declared to preferred shareholders by
the weighted average number of common shares outstanding during the year after giving retroactive
effect to stock dividends declared and stock rights exercised during the year, if any.
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Diluted EPS is calculated by dividing the net income attributable to common shareholders by the
weighted average number of common shares outstanding during the year adjusted for the effects of
any dilutive potential common shares.
Equity
‘Capital stock’ is measured at par value for all shares issued and outstanding. When the shares are
sold at a premium, the difference between the proceeds and the par value is credited to ‘Additional
paid-in capital’. Direct costs incurred related to equity issuance, such as underwriting, accounting
and legal fees, printing costs and taxes are chargeable to ‘Additional paid-in capital’. If the additional
paid-in capital is not sufficient, the excess is charged against ‘Surplus’.
When the Group issues more than one class of stock, a separate account is maintained for each class
of stock and the number of shares issued.
‘Surplus’ represents accumulated earnings of the Group less dividends declared.
Dividends on Common Shares and Preferred Shares

Cash dividends on common shares and preferred shares are recognized as a liability and deducted
from equity when approved by the BOD of the Parent Company, while stock dividends are deducted
from equity when approved by the BOD and shareholders of the Parent Company.
Segment Reporting
The Group’s operating businesses are organized and managed separately according to the nature of
the products and services provided, with each segment representing a strategic business unit that
offers different products and serves different markets. If the Group changes the structure of its
internal organization in a manner that causes the composition of its reportable segments to change,
the corresponding information for earlier periods, including interim periods, shall be restated unless
the information is not available and the cost to develop it would be excessive. Financial information
on business segments is presented in Note 35.
Fiduciary Activities
Assets and income arising from fiduciary activities together with related undertakings to return such
assets to customers are excluded from the financial statements where the Parent Company acts in a
fiduciary capacity such as nominee, trustee or agent.
Events after the Reporting Period

Any post-year-end event that provides additional information about the Group’s position at the
statements of financial position date (adjusting event) is reflected in the financial statements. Any
post-year-end events that are not adjusting events are disclosed when material to the financial
statements.
Standards Issued but Not Yet Effective

Standards issued but not yet effective up to the date of issuance of the Group’s consolidated financial
statements are listed below. The listing consists of standards and interpretations issued, which the
Group reasonably expects to be applicable at a future date. The Group intends to adopt these
standards when they become effective. Except as otherwise indicated, the Group does not expect the
adoption of these new and amended PAS, PFRS and Philippine Interpretations to have significant
impact on the consolidated financial statements.
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Effective beginning on or after January 1, 2018

PFRS 9, Financial Instruments
PFRS 9 reflects all phases of the financial instruments project and replaces PAS 39, Financial
Instruments: Recognition and Measurement, and all previous versions of PFRS 9. The standard
introduces new requirements for classification and measurement, impairment, and hedge accounting.
Retrospective application is required but providing comparative information is not compulsory. For
hedge accounting, the requirements are generally applied prospectively, with some limited
exceptions. The Group will adopt the new standard on the mandatory effective date and will not
restate comparative information. The Group has performed an assessment of the population of
financial instruments impacted by the classification and measurement requirements of the final
version of PFRS 9 and has developed impairment methodologies to support the calculation of
expected credit losses (ECL) for qualified credit exposures.
a. Classification and Measurement

The final version of PFRS 9 introduced a new FVTOCI classification for debt instruments where
the objective of the business model is both to collect contractual cash flows and to realize fair
value changes. As a result of the application of the classification and measurement requirements
of the final version of PFRS 9, certain debt securities currently held under a “hold-to-collect”
(HTC) business model are expected to be reclassified to FVTOCI with recycling to profit or loss
for securities belonging to portfolios managed under a “hold-to-collect-and-sell” business model.
b. Impairment
PFRS 9 requires the Group to record ECL for all loans and other debt financial assets not
classified as FVTPL, together with loan commitments and financial guarantee contracts.
Incurred loss versus expected credit loss methodology

The impairment requirements under PAS 39 (incurred loss model) are significantly different from
those under PFRS 9 (expected loss model). Under the incurred loss model, loan and investment
assets are regarded as impaired if there is no longer reasonable assurance that the future cash
flows related to them will be either collected in their entirety or when due. Under the expected
loss methodology, impairment is more forward looking, in that a credit event (or impairment
‘trigger’) no longer has to occur before credit losses are recognized. ECL represents credit losses
that reflect an unbiased and probability-weighted amount which is determined by evaluating a
range of possible outcomes, the time value of money and reasonable and supportable information
about past events, current conditions and forecasts of future economic conditions. ECL
allowances will be measured at amounts equal to either (i) 12-month ECL or (ii) lifetime ECL for
those financial instruments which have experienced a significant increase in credit risk (SICR)
since initial recognition (General Approach). The 12-month ECL is the portion of lifetime ECL
that results from default events on a financial instrument that are possible within the 12 months
after the reporting date. Lifetime ECL are credit losses that results from all possible default
events over the expected life of a financial instrument.
Staging assessment
PFRS 9 establishes a three-stage approach for impairment of financial assets, based on whether
there has been a significant deterioration in the credit risk of a financial asset. These three stages
then determine the amount of impairment to be recognized.
For non-credit-impaired financial instruments:

∂ Stage 1 is comprised of all financial instruments which have not experienced a SICR since
initial recognition or is considered of low credit risk as of the reporting date. The Group
recognizes a 12-month ECL for Stage 1 financial instruments.
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∂ Stage 2 is comprised of all financial instruments which have experienced a SICR since initial
recognition. The Group recognizes a lifetime ECL for Stage 2 financial instruments.
For credit-impaired financial instruments:
∂ Stage 3 is comprised of all financial assets that have objective evidence of impairment as a
result of one or more loss events that have occurred after initial recognition with a negative
impact on the estimated future cash flows of a loan or a portfolio of loans. The Group
recognizes a lifetime ECL for Stage 3 financial instruments.
Definition of “default” and “restored”

The Group generally classifies a financial instrument as in default when it is credit impaired, or
becomes past due on its contractual payments for more than 90 days. As part of a qualitative
assessment of whether a customer is in default, the Group considers a variety of instances that
may indicate unlikeliness to pay. When such events occur, the Group carefully considers whether
the event should result in treating the customer as defaulted. An instrument is considered to be
no longer in default (i.e. restored) if there is sufficient evidence to support that full collection is
probable and payments are received for at least six months.
Credit risk at initial recognition

The Group uses internal credit assessment and approvals at various levels to determine the credit
risk of exposures at initial recognition. Assessment can be quantitative or qualitative and depends
on the materiality of the facility or the complexity of the portfolio to be assessed.
Significant increase in credit risk

The assessment of whether there has been a significant increase in credit risk is based on an
increase in the probability of a default occurring since initial recognition. The SICR criteria vary
by portfolio and include quantitative changes in probabilities of default and qualitative factors,
including a backstop based on delinquency. The credit risk of a particular exposure is deemed to
have increased significantly since initial recognition if, based on the Group’s internal credit
assessment, the borrower or counterparty is determined to require close monitoring or with well-
defined credit weaknesses. For exposures without internal credit grades, if contractual payments
are more than a specified days past due threshold, the credit risk is deemed to have increased
significantly since initial recognition. Days past due are determined by counting the number of
days since the earliest elapsed due date in respect of which full payment has not been received.
Due dates are determined without considering any grace period that might be available to the
borrower. In subsequent reporting periods, if the credit risk of the financial instrument improves
such that there is no longer a SICR since initial recognition, the Group shall revert to recognizing
a 12-month ECL.
ECL parameters and methodologies

ECL is a function of the probability of default (PD), loss given default (LGD) and exposure at
default (EAD), with the timing of the loss also considered, and is estimated by incorporating
forward-looking economic information and through the use of experienced credit judgment.
The PD is an estimate of the likelihood of default over a 12-month horizon for Stage 1 or lifetime
horizon for Stage 2. The PD for each individual instrument is modelled based on historic data
and is estimated based on current market conditions and reasonable and supportable information
about future economic conditions. The Group segmented its credit exposures based on
homogenous risk characteristics and developed a corresponding PD methodology for each
portfolio. The PD methodology for each relevant portfolio is determined based on the underlying
nature or characteristic of the portfolio, behavior of the accounts and materiality of the segment as
compared to the total portfolio.
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LGD is an estimate of the loss arising on default. It is based on the difference between the
contractual cash flows due and those that the lender would expect to receive, including from any
collateral.
EAD is an estimate of the exposure at a future default date, taking into account expected changes
in the exposure after the reporting date, including repayments of principal and interest, and
expected drawdowns on committed facilities.
Forward-looking information
The Group incorporates forward-looking information into both its assessment of whether the
credit risk of an instrument has increased significantly since its initial recognition and its
measurement of ECL. A broad range of forward-looking information are considered as economic
inputs, such as GDP growth, exchange rate, interest rate, inflation rate and other economic
indicators. The inputs and models used for calculating ECL may not always capture all
characteristics of the market at the date of the financial statements. To reflect this, qualitative
adjustments or overlays are occasionally made as temporary adjustments when such differences
are significantly material.
The Group has determined that the financial and operational aspects of the ECL methodologies
under PFRS 9 will have an impact to the 2018 consolidated financial statements.
c. Hedge Accounting
The new hedge accounting model under PFRS 9 aims to simplify hedge accounting, align the
accounting for hedge relationships more closely with an entity’s risk management activities and
permit hedge accounting to be applied more broadly to a greater variety of hedging instruments
and risks eligible for hedge accounting. The Group has assessed that the adoption of these
amendments will not have any impact in the 2018 consolidated financial statements.
The Group has applied its existing governance framework to ensure that appropriate controls and
validations are in place over key processes and judgments in implementing PFRS 9.
PFRS 15, Revenue from Contracts with Customers

PFRS 15 establishes a new five-step model that will apply to revenue arising from contracts with
customers. Under PFRS 15, revenue is recognized at an amount that reflects the consideration to
which an entity expects to be entitled in exchange for transferring goods or services to a customer.
The principles in PFRS 15 provide a more structured approach to measuring and recognizing revenue.
The new revenue standard is applicable to all entities and will supersede all current revenue
recognition requirements under PFRSs. Either a full or modified retrospective application is required
for annual periods beginning on or after January 1, 2018.
The Group is currently assessing the impact of adopting PFRS 15.
Amendments to PAS 40, Investment Property, Transfers of Investment Property

The amendments clarify when an entity should transfer property, including property under
construction or development into, or out of investment property. The amendments state that a change
in use occurs when the property meets, or ceases to meet, the definition of investment property and
there is evidence of the change in use. A mere change in management’s intentions for the use of a
property does not provide evidence of a change in use. The amendments should be applied
prospectively to changes in use that occur on or after the beginning of the annual reporting period in
which the entity first applies the amendments. Retrospective application is only permitted if this is
possible without the use of hindsight.
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Amendments to PAS 28, Measuring an Associate or Joint Venture at Fair Value (Part of Annual
Improvements to PFRSs 2014 - 2016 Cycle)
The amendments clarify that an entity that is a venture capital organization, or other qualifying entity,
may elect, at initial recognition on an investment-by-investment basis, to measure its investments in
associates and joint ventures at fair value through profit or loss. They also clarify that if an entity that
is not itself an investment entity has an interest in an associate or joint venture that is an investment
entity, the entity may, when applying the equity method, elect to retain the fair value measurement
applied by that investment entity associate or joint venture to the investment entity associate’s or joint
venture’s interests in subsidiaries. This election is made separately for each investment entity
associate or joint venture, at the later of the date on which (a) the investment entity associate or joint
venture is initially recognized; (b) the associate or joint venture becomes an investment entity; and
(c) the investment entity associate or joint venture first becomes a parent.
The amendments should be applied retrospectively, with earlier application permitted.
Amendments to PFRS 2, Share-based Payment, Classification and Measurement of Share-based

Payment Transactions
The amendments to PFRS 2 address three main areas: the effects of vesting conditions on the
measurement of a cash-settled share-based payment transaction; the classification of a share-based
payment transaction with net settlement features for withholding tax obligations; and the accounting
where a modification to the terms and conditions of a share-based payment transaction changes its
classification from cash settled to equity settled.
On adoption, entities are required to apply the amendments without restating prior periods, but
retrospective application is permitted if elected for all three amendments and if other criteria are met.
Early application of the amendments is permitted.
Amendments to PFRS 4, Insurance Contracts, Applying PFRS 9, Financial Instruments, with PFRS 4
The amendments address concerns arising from implementing PFRS 9, the new financial instruments
standard before implementing the forthcoming insurance contracts standard. They allow entities to
choose between the overlay approach and the deferral approach to deal with the transitional
challenges. The overlay approach gives all entities that issue insurance contracts the option to
recognize in other comprehensive income, rather than profit or loss, the volatility that could arise
when PFRS 9 is applied before the new insurance contracts standard is issued. On the other hand, the
deferral approach gives entities whose activities are predominantly connected with insurance an
optional temporary exemption from applying PFRS 9 until the earlier of application of the
forthcoming insurance contracts standard or January 1, 2021. The overlay approach and the deferral
approach will only be available to an entity if it has not previously applied PFRS 9.
The amendments are not applicable to the Group since none of the entities within the Group have
activities that are predominantly connected with insurance or issue insurance contracts.
Philippine Interpretation IFRIC 22, Foreign Currency Transaction and Advance Consideration
The interpretation clarifies that, in determining the spot exchange rate to use on initial recognition of
the related asset, expense or income (or part of it) on the derecognition of a non-monetary asset or
non-monetary liability relating to advance consideration, the date of the transaction is the date on
which an entity initially recognizes the nonmonetary asset or non-monetary liability arising from the
advance consideration. If there are multiple payments or receipts in advance, then the entity must
determine a date of the transactions for each payment or receipt of advance consideration. Entities
may apply the amendments on a fully retrospective basis. Alternatively, an entity may apply the
interpretation prospectively to all assets, expenses and income in its scope that are initially recognized
on or after the beginning of the reporting period in which the entity first applies the interpretation or
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the beginning of a prior reporting period presented as comparative information in the financial
statements of the reporting period in which the entity first applies the interpretation.
Effective beginning on or after January 1, 2019

PFRS 16, Leases
Under the new standard, lessees will no longer classify their leases as either operating or finance
leases in accordance with PAS 17, Leases. Rather, lessees will apply the single-asset model. Under
this model, lessees will recognize the assets and related liabilities for most leases on their balance
sheets, and subsequently, will depreciate the lease assets and recognize interest on the lease liabilities
in their profit or loss. Leases with a term of 12 months or less or for which the underlying asset is of
low value are exempted from these requirements. The accounting by lessors is substantially
unchanged as the new standard carries forward the principles of lessor accounting under PAS 17.
Lessors, however, will be required to disclose more information in their financial statements,
particularly on the risk exposure to residual value. Entities may early adopt PFRS 16 but only if they
have also adopted PFRS 15. When adopting PFRS 16, an entity is permitted to use either a full
retrospective or a modified retrospective approach, with options to use certain transition reliefs.
The Group is currently assessing the impact of adopting PFRS 16.
Amendments to PFRS 9, Prepayment Features with Negative Compensation

The amendments to PFRS 9 allow debt instruments with negative compensation prepayment features
to be measured at amortized cost or fair value through other comprehensive income. An entity shall
apply these amendments for annual reporting periods beginning on or after January 1, 2019. Earlier
application is permitted.
Amendments to PAS 28, Long-term Interests in Associates and Joint Ventures

The amendments to PAS 28 clarify that entities should account for long-term interests in an associate
or joint venture to which the equity method is not applied using PFRS 9. An entity shall apply these
amendments for annual reporting periods beginning on or after January 1, 2019. Earlier application is
permitted.
Philippine Interpretation IFRIC 23, Uncertainty over Income Tax Treatments

Philippine Interpretation IFRIC 23 addresses the accounting for income taxes when tax treatments
involve uncertainty that affects the application of PAS 12 and does not apply to taxes or levies
outside the scope of PAS 12, nor does it specifically include requirements relating to interest and
penalties associated with uncertain tax treatments.
The interpretation specifically addresses the following:

∂ Whether an entity considers uncertain tax treatments separately
∂ The assumptions an entity makes about the examination of tax treatments by taxation authorities
∂ How an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax credits
and tax rates
∂ How an entity considers changes in facts and circumstances
An entity must determine whether to consider each uncertain tax treatment separately or together with
one or more other uncertain tax treatments. The approach that better predicts the resolution of the
uncertainty should be followed.
The Group is currently assessing the impact of adopting this interpretation.
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Deferred effectivity
Amendments to PFRS 10, Consolidated Financial Statements and PAS 28, Investments in Associates
and Joint Ventures - Sale or Contribution of Assets between an Investor and its Associate or Joint
Venture
The amendments address the conflict between PFRS 10 and PAS 28 in dealing with the loss of
control of a subsidiary that is sold or contributed to an associate or joint venture. The amendments
clarify that a full gain or loss is recognized when a transfer to an associate or joint venture involves a
business as defined in PFRS 3, Business Combinations. Any gain or loss resulting from the sale or
contribution of assets that does not constitute a business, however, is recognized only to the extent of
unrelated investors’ interests in the associate or joint venture. On January 13, 2016, the FRSC
postponed the original effective date of January 1, 2016 of the said amendments until the IASB has
completed its broader review of the research project on equity accounting that may result in the
simplification of accounting for such transactions and of other aspects of accounting for associates
and joint ventures.
3. Significant Accounting Judgments and Estimates
The preparation of the financial statements in compliance with PFRS requires the Group to make
judgments, estimates and assumptions that affect the reported amounts of assets, liabilities, income
and expenses and disclosures of contingent assets and contingent liabilities. Future events may occur
which will cause the assumptions used in arriving at the estimates to change. The effects of any
change in estimates are reflected in the financial statements as they become reasonably determinable.
Judgments and estimates are continually evaluated and are based on historical experience and other
factors, including expectations of future events that are believed to be reasonable under the
circumstances.
Judgments
a. Leases
Operating lease
Group as lessor
The Group has entered into commercial property leases on its investment property portfolio. The
Group has determined based on the evaluation of the terms and conditions of the arrangements
(i.e., the lease does not transfer the ownership of the asset to the lessee by the end of the lease
term, the lessee has no option to purchase the asset at a price that is expected to be sufficiently
lower than the fair value at the date the option is exercisable and the lease term is not for the
major part of the asset’s economic life), that it retains all the significant risks and rewards of
ownership of these properties which are leased and so accounts for the contracts as operating
leases.
Group as lessee
The Group has entered into leases on premises it uses for its operations. The Group has
determined, based on the evaluation of the terms and conditions of the lease agreements (i.e. the
lease does not transfer ownership of the asset to the lessee by the end of the lease term and the
lease term is not for the major part of the asset’s economic life), that the lessor retains all
significant risks and rewards of the ownership of these properties and so accounts for these
contracts as operating leases.
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Finance lease
Group as lessor
The Group has determined based on an evaluation of terms and conditions of the lease
arrangements (i.e., present value of minimum lease payments amounts to at least substantially all
of the fair value of leased asset, lease term is for the major part of the economic useful life of the
asset, and lessor’s losses associated with the cancellation are borne by the lessee) that it has
transferred all significant risks and rewards of ownership of the properties it leases out on finance
leases.
b. Fair value of financial instruments

Where the fair values of financial assets and financial liabilities recognized or disclosed in the
statements of financial position cannot be derived from active markets, these are determined
using internal valuation techniques using generally accepted market valuation models.
The inputs to these models are taken from observable markets where possible, but where this is
not feasible, a degree of judgment is required in establishing fair values. These judgments may
include considerations of liquidity and model inputs such as correlation and volatility for longer
dated derivatives.
c. Embedded derivatives
Where a hybrid instrument is not a financial asset or financial liability within the scope of
PFRS 9, the Group evaluates whether the embedded derivative should be bifurcated and
accounted for separately. This includes assessing whether the embedded derivative has a close
economic relationship to the host contract.
d. Business model test

The Group manages its financial assets based on business models that maintain adequate level of
financial assets to match expected cash outflows and maintain adequate level of high quality
liquid assets while maintaining a strategic portfolio of financial assets for trading activities.
The Group's business model can be to hold financial assets to collect contractual cash flows even
when sales of certain financial assets occur. PFRS 9, however, emphasizes that if more than an
infrequent number of sales are made out of a portfolio of financial assets carried at amortized
cost, the entity should assess whether and how such sales are consistent with the objective of
collecting contractual cash flows. In making this judgment, the Group considers, among other
factors, the following:
a. Sales which no longer meet the Group’s investment policy (e.g. due to downgrade in credit
rating below that required by the entity’s investment policy);
b. Sales of financial assets in order to fund capital expenditures;
c. Sales of financial assets to reflect the change in expected timing of payouts;
d. Sales which are so close to maturity (e.g. less than 3 months) or the security’s call date, that
changes in the market rate of interest would not have a significant effect on the security’s fair
value;
e. Sales that occur after the Group has substantially collected all of the security’s original
principal through scheduled payments or prepayments;
f. Sales attributable to an isolated event that is beyond the Group’s control, is non-recurring and
could not have been reasonably anticipated;
g. Sales attributable to a change in tax law that eliminates or significantly reduced the tax
exempt status of interest on the security under the amortized cost category;
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h. Sales attributable to a major combination or major disposition that necessitates the sale of
securities under the amortized cost category to maintain the Group’s interest rate risk position
or credit risk policy
i. Sales attributable to a change in statutory or regulatory requirements significantly modifying
either what constitutes a permissible investment or the maximum level of particular
investments, thereby causing the Group to dispose a security under the amortized cost
category;
j. Sales attributable to a significant increase in regulatory capital requirements that causes the
Group to downsize by selling securities under the amortized cost category
k. Sales attributable to a significant increase in the risk weights of securities under the amortized
cost category used for regulatory risk-based capital purposes;
l. Sales / derecognition attributable to the changes in the payment structure as initiated by the
creditor (e.g bond swap or exchange, options, changes in tenor and other debt related
restructuring); and
m. Sales that occur under stressed scenarios defined in Internal Capital Adequacy Assessment
Process (ICAAP).
As discussed in Note 11, the Parent Company disposed USD-denominated government debt
securities during the fourth quarter of 2017. The Parent Company revisited its existing business
models and has assessed that there is a need to change its business model for managing HTC
securities.
As discussed in Note 11, the Parent Company participated in various bond swaps and cash tender
offers executed by the Republic of the Philippines and certain private entities resulting in the
disposal of certain investment securities under the HTC business model. The Parent Company
assessed that these disposals are consistent with the allowed disposals under its HTC business
model.
As discussed in Note 11, the Parent Company sold certain USD-denominated investment
securities under the HTC business model in 2016. The Parent Company assessed that these
disposals are consistent with the allowed disposals under its HTC business model since it was
caused by a significant increase in regulatory requirements that caused the Parent Company to
downsize by selling securities under the amortized cost category. Also in 2016, the Parent
Company introduced its Peso HTC business model for government securities to supplement the
HQLA requirements of BSP Circular No. 905.
As discussed in Note 11, the Parent Company changed its business model in managing its Peso-
denominated government debt securities from the collection of contractual cash flows to the
realization of fair value changes in 2015. The Parent Company disposed Peso-denominated
government securities as part of the change in its business model.
In October 2017, the Parent Company sold, on a without recourse basis, certain personal loans to
SBFCI amounting to P =1.4 billion, in line with the Parent Company’s direction to grow personal
loans - public portfolio under SBFCI. The Parent Company has assessed that the sale does not
affect the HTC objective of the remaining loans and receivables as the sale was a one-off
transaction and the amount was not significant in relation to the total loan portfolio of the Parent
Company (see Note 12).
On various dates in 2015, SBS sold, on a without recourse basis, certain corporate, small business
and consumer loans to the Parent Company. The Parent Company classified these loans under
the HTC business model. At the consolidated level, the business model for all loans and
receivables remains to be HTC (see Note 12).
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e. Cash flow characteristics test

Where the financial assets are classified as at amortized cost, the Group assesses whether the
contractual terms of these financial assets give rise on specified dates to cash flows that are solely
payments of principal and interest on the principal outstanding, with interest representing time
value of money and credit risk associated with the principal amount outstanding. The assessment
as to whether the cash flows meet the test is made in the currency in which the financial asset is
denominated. Any other contractual term that changes the timing or amount of cash flows
(unless it is a variable interest rate that represents time value of money and credit risk) does not
meet the amortized cost criteria.
f. Contingencies
The Group is currently involved in various legal proceedings, claims and assessments. The
estimate of the probable costs for the resolution of these claims and assesments has been
developed in consultation with outside counsel handling the Group’s defense in these matters and
is based on an analysis of potential results. The Group currently does not believe that these
proceedings will have a material adverse effect on the financial statements. It is possible,
however, that future results of operations could be materially affected by changes in the estimates
or in the effectiveness of the strategies relating to these proceedings (see Note 34).
g. Functional currency
PAS 21, The Effects of Changes in Foreign Exchange Rates, requires management to use its
judgment to determine the entity’s functional currency such that it most faithfully represents the
economic effects of the underlying transactions, events and conditions that are relevant to the
entity. In making this judgment, the Group considers the following:
∂ the currency that mainly influences sales prices for financial instruments and services (this
will often be the currency in which sales prices for its financial instruments and services are
denominated and settled);
∂ the currency in which funds from financing activities are generated; and
∂ the currency in which receipts from operating activities are usually retained.
h. Consolidation and joint arrangements

The Group has determined that it controls and consolidates the subsidiaries in which it owns
majority of the shares.
The Group has a Joint Venture Agreement (JVA) with Marubeni Corporation (Marubeni) where
it owns 60.0% of SBML. Under the JVA, the parties agreed to use SBML as a joint venture
entity and requires the unanimous consent of both the Parent Company and Marubeni for any
significant decisions made in the ordinary course of business of SBML. The Group has (after
considering the structure and form of the arrangement, the terms agreed by the parties in the
contractual arrangement and the Group's rights and obligations arising from the arrangement)
classified its interest in SBML under PFRS 11. Based on the foregoing, it continues to accounts
for its investment in SBML using the equity method.
i. Discontinued operations
The Group has determined that the sale of SBCC's credit card portfolio in 2016 will not be
reported as discontinued operations in the Group financial statements since the portfolio sold does
not represent a separate major line of business.
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Estimates
a. Fair value of financial instruments
The fair values of financial instruments that are not quoted in active markets are determined using
valuation techniques such as discounted cash flow analysis and standard option pricing models
for some derivative instruments. Where valuation techniques are used to determine fair values,
they are reviewed by qualified personnel independent of the area that created them. All financial
models are reviewed before they are used and to the extent practicable, financial models use only
observable data, however, areas such as credit risk (both own and counterparty) volatilities and
correlations require management to make estimates. Changes in assumptions about these factors
could affect reported fair value of financial instruments. Refer to Note 6 for the fair value
measurements of financial instruments.
b. Impairment of loans and receivables

The Group reviews its individually significant loans and receivables at each statement of financial
position date to assess whether an impairment loss should be recorded in the statement of income.
In particular, judgment by management is required in the estimation of the amount and timing of
future cash flows when determining the impairment loss. In estimating these cash flows, the
Group makes judgments about the counterparty’s financial situation and the net realizable value
of collateral. These estimates are based on assumptions about a number of factors including the
financial condition of the counterparty, estimated future cash flows, probability of collections,
observable market condition, prices and net realizable value of the collateral. The actual results
may differ, resulting in future changes to the recognized impairment loss.
Loans and receivables that have been assessed individually and found not to be impaired and all
individually insignificant loans and receivables are then assessed collectively, in groups of assets
with similar characteristics, to determine whether provision should be made due to incurred loss
events for which there is objective evidence but whose effects are not yet evident. The collective
assessment takes account of data from the loan portfolio, concentrations of risks and economic
data.
The carrying values of loans and receivables and the related allowance for credit losses of the
Group and the Parent Company, as applicable, are disclosed in Note 12.
c. Recognition of deferred tax assets

The Group reviews the carrying amounts of deferred tax assets at each statements of financial
position date and reduces it to the extent that it is no longer probable that sufficient future taxable
income will be available to allow all or part of the deferred tax assets to be utilized. Significant
judgment is required to determine the amount of deferred tax assets that can be recognized, based
upon the likely timing and level of future taxable income together with future tax planning
strategies. The recognized net deferred tax assets and unrecognized deferred tax assets of the
Group and the Parent Company are disclosed in Note 28.
d. Impairment of non-financial assets

Investments in subsidiaries and a joint venture and other non-financial assets
The Parent Company and SBCIC assess impairment on its investments in subsidiaries and a joint
venture whenever events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable.
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Among others, the factors that the Parent Company and SBCIC consider important which could
trigger an impairment review on its investments include the following:
∂ Deteriorating or poor financial condition;

∂ Recurring net losses; and
∂ Significant changes with an adverse effect on the subsidiary or associate have taken place
during the period, or will take place in the near future, the technological, market, economic,
or legal environment in which the subsidiary operates.
The Group assesses impairment on other non-financial assets (i.e., ‘Property and equipment’,
‘Investment properties’, ‘Software costs’, ‘Exchange trading right’, ‘Branch licenses’ and ‘Other
properties acquired’) whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. The factors that the Group considers important which
could trigger an impairment review include the following:
∂ significant underperformance relative to expected historical or projected future operating

results;
∂ significant changes in the manner of use of the acquired nonfinancial assets or the strategy for
overall business; and
∂ significant negative industry or economic trends.
The Group recognizes an impairment loss whenever the carrying amount of the asset exceeds its
recoverable amount. The recoverable amount is computed based on the higher of the asset’s fair
value less cost to sell or VIU. Recoverable amounts are estimated for individual nonfinancial
assets or, if it is not possible, for the CGU to which the nonfinancial asset belongs.
The Group is required to make estimates and assumptions that can materially affect the carrying
amount of the asset being assessed.
As of December 31, 2017 and 2016, the carrying values of the Parent Company’s investments in
subsidiaries and a joint venture and the related allowance for impairment losses are disclosed in
Note 13.
The carrying values of the Group’s and the Parent Company’s non-financial assets (other than
‘Goodwill’) follow:

2017 2016 2017 2016
Property and equipment (Note 14) =4,104,073
P =3,457,433
P =3,148,305
P =2,944,651
P
Investment properties (Note 15) 791,306 659,051 793,772 665,069
Branch licenses (Note 16) 1,460,000 1,440,000 1,445,000 1,425,000
Software costs (Note 16) 550,539 435,143 548,709 423,875
Other properties acquired (Note 16) 36,770 44,143 36,792 44,823
Exchange trading right (Note 16) 8,500 8,500 − −
The provision for (recovery of) impairment losses on non-financial assets of the Group and the
Parent Company are disclosed in Note 15.
Goodwill
Goodwill is reviewed for impairment annually or more frequently if events or changes in
circumstances indicate that the carrying value may be impaired. Impairment is determined for
goodwill by assessing the recoverable amount of the CGU (or group of CGUs) to which the
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goodwill relates. Where the recoverable amount of the CGU (or group of CGUs) is less than the
carrying amount of the CGU (or group of CGUs) to which goodwill has been allocated, an
impairment loss is recognized immediately in the statement of income. The carrying value of
goodwill is disclosed in Note 4.
e. Estimated useful lives of property and equipment, investment properties, software costs and other
properties acquired
The Group reviews on an annual basis the estimated useful lives of property and equipment,
depreciable investment properties, software costs and other properties acquired based on expected
asset utilization as anchored on business plans and strategies that also consider expected future
technological developments and market behavior. It is possible that future results of operations
could be materially affected by changes in these estimates brought about by changes in the factors
mentioned. A reduction in the estimated useful lives of property and equipment, depreciable
investment properties, software costs and other properties acquired would decrease their
respective balances and increase the recorded depreciation and amortization expense.
The carrying values of depreciable property and equipment, investment properties, software costs
and other properties acquired follow:

2017 2016 2017 2016
Property and equipment (Note 14)* =3,747,251
P =
P 3,111,086 =2,746,845
P =
P2,554,721
Investment properties (Note 15)* 185,225 88,284 261,333 164,780
Software costs (Note 16) 550,539 435,143 548,709 423,875
Other properties acquired (Note 16) 36,770 44,143 36,792 44,823
*Excludes land
f. Pension benefits
The cost of defined benefit pension plans and other post employment medical benefits as well as
the present value of the pension obligation are determined using actuarial valuations. The
actuarial valuation involves making various assumptions. These include the determination of the
discount rates, future salary increases, mortality rates and future pension increases. Due to the
complexity of the valuation, the underlying assumptions and its long-term nature, defined benefit
obligations are highly sensitive to changes in these assumptions. All assumptions are reviewed at
each reporting date.
The present value of the defined benefit obligation of the Group and the Parent Company are
disclosed in Note 29.
In determining the appropriate discount rate, management considers the interest rates of
government bonds that are denominated in the currency in which the benefits will be paid, with
extrapolated maturities corresponding to the expected duration of the defined benefit obligation.
The mortality rate is based on publicly available mortality tables for the specific country and is
modified accordingly with estimates of mortality improvements. Future salary increases and
pension increases are based on expected future inflation rates.
Further details about the assumptions used are provided in Note 29.
Employee entitlements to annual leave are recognized as a liability when they are accrued to the
employees. The undiscounted liability for leave expected to be settled wholly before twelve
months after the end of the annual reporting period is recognized for services rendered by
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employees up to the end of the reporting period. As of December 31, 2017 and 2016, accrual for
other employee benefit obligations and expenses included under ‘Accrued other expenses
payable’ (included under ‘Accrued interest, taxes and other expenses’ in the statements of
financial position) amounted to =
P1.1 billion and P
=713.6 million, respectively for the Group, and
P
=1.1 billion and =
P706.8 million, respectively for the Parent Company (see Note 23).
4. Goodwill
Impairment Testing of Goodwill

In 2012, goodwill acquired through business combination has been allocated to SBS as the CGU. In
2015, the entire goodwill was reallocated to the 23 branches of SBS which were transferred to the
Parent Company as a single CGU (see Note 13). As of December 31, 2017 and 2016, the carrying
amount of goodwill amounted to P =841.6 million and there was no impairment loss recognized in 2017
and 2016.
The recoverable amount of the CGU has been determined based on a VIU calculation using cash flow
projections from financial budgets approved by senior management covering a four-year period. Key
assumptions in VIU calculation of CGUs are most sensitive to discount rates and growth rates used to
project cash flows. Future cash flows and growth rates were based on experiences and strategies
developed and prospects. The discount rate used for the computation of the net present value is the
cost of equity and was determined by reference to a comparable entity. In 2017 and 2016, the post-
tax discount rate applied to cash flow projections is 9.15% and 13.75%, respectively, while the
growth rate used to extrapolate cash flows beyond the four-year period is 3.0% for both years.
Management believes that no reasonably possible change in any of the above key assumptions would
cause the carrying value of the goodwill to materially exceed its recoverable amount.
5. Financial Risk Management Objectives and Policies
Introduction
Integral to the Parent Company’s value creation process is risk management. It therefore operates an
integrated risk management system to address the risks it faces in its banking activities, including
credit, market, liquidity and operational risks. Exposures across these risk areas are regularly
identified, measured, controlled, monitored and reported to Senior Management, Risk Oversight
Committee (ROC) and the BOD.
Risk Management Structure

Board of Directors
The BOD directs the Parent Company’s over-all risk management strategy. The risk management
processes of the subsidiaries are the separate responsibilities of their respective BOD. The BOD
performs an oversight function on the Parent Company’s implementation of its risk policies through
various committees that it has created as follows:
Risk Oversight Committee

The ROC reviews, approves, and ensures effective implementation of the risk management
framework. It approves risk-related policies, oversees limits to discretionary authority that the BOD
delegates to management, and evaluates the magnitude, distribution and direction of risks in the
Parent Company.
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Corporate Governance Committee

The Corporate Governance Committee oversees the compliance function and assists the BOD in
fulfilling its corporate governance responsibilities. It is responsible for ensuring the BOD’s
effectiveness and, due observance of corporate governance principles and guidelines.
Audit Committee
The Audit Committee through the Internal Audit Division provides the independent assessment of the
overall effectiveness of, and compliance with the Parent Company’s risk management policies and
processes.
Executive Committee
The Executive Committee approves credit risk limit for large exposures except for directors, officers,
stockholders and related interests (DOSRI) loans, which are approved by the BOD regardless of
amount.
Loan Restructuring Committee

The Loan Restructuring Committee focuses on substandard or non-performing loans (NPLs) and
approves the remedial strategy and action plan for these exposures.
Related Party Transaction Committee

The Related Party Transaction Committee ensures that transactions with related parties are handled in
a sound and prudent manner, with integrity, and in compliance with applicable laws and regulations
to protect the interest of depositors, creditors and other stakeholders.
Technology Steering Committee

The Technology Steering Committee oversees the development, implementation and performance of
information technology systems in the Group.
The Parent Company’s organizational structure includes the Risk Management Group (RMG), which
is responsible for driving the following risk management processes of the Group:
∂ Independent assessment, measurement, monitoring and reporting of the Group’s risk-taking

activities; and
∂ Formulation, review and recommendation of risk-related policies and control structures.
Nevertheless, the Group’s risk management framework adopts the basic tenet that risks are owned by
the respective business and process owners. Everyone in the organization is therefore expected to
proactively manage the risks inherent to their respective area by complying with the Group’s risk
management framework, policies and standards.
The Parent Company and its subsidiaries manage their respective financial risks separately. The
subsidiaries have their own risk management procedures but are structured similar to that of the
Parent Company. To a certain extent, the respective risk management programs and objectives are
the same across the Group.
Risk Measurement and Reporting

The Parent Company’s risks are measured using various methods compliant with Basel III standards.
The Parent Company also runs worst case scenarios that would arise in the event that extreme events
which are unlikely to occur do, in fact, occur.
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Monitoring and controlling risks are primarily performed based on limits established by the Parent
Company. These limits reflect the business strategy and market environment of the Parent Company
as well as the level of risk that the Parent Company is willing to take. In addition, the Parent
Company monitors and measures the overall risk-bearing capacity in relation to the aggregate risk
exposure across all risk types and activities.
For all levels throughout the Parent Company, specifically tailored risk reports are prepared and
distributed in order to ensure that all business divisions have access to extensive, necessary and up-to-
date information. These reports include aggregate credit exposure, credit metric forecasts, limit
exceptions, Value-at-Risk (VaR), liquidity ratios and risk profile changes.
Credit Risk Management prepares detailed reporting of risks per industry, customer risk rating and
and classification. Senior management assesses the appropriateness of allowance for credit losses on
a yearly basis or as the need arises. The ROC and the heads of the concerned business units receive a
comprehensive credit risk report monthly which is designed to provide all the necessary information
to assess and conclude on the credit risks of the Parent Company.
In the case of market risk, a monthly report is presented to the ROC on the utilization of market limits
and liquidity, plus any other risk developments.
Information compiled from all the businesses is examined and processed in order to analyze, control
and identify risks early. This information is presented and explained to the BOD, the ROC, and the
head of each business unit.
Risk Mitigation
As part of its market risk management, the Parent Company uses derivatives and other instruments to
manage exposures resulting from changes in interest rates and foreign currencies.
In accordance with the Parent Company’s policy, the risk profile of the Parent Company is assessed
before entering into hedge transactions, which are authorized by the appropriate committees. The
effectiveness of hedges is assessed by the RMG. The effectiveness of all the hedge relationships is
monitored by the RMG monthly. In situations of ineffectiveness, the Parent Company will enter into
a new hedge relationship to mitigate risk on a continuous basis.
The Parent Company actively uses collateral to reduce its credit risks.
Excessive Risk Concentration

Concentrations arise when a number of counterparties are engaged in similar business activities or
activities in the same geographic region, or have similar economic features that would cause their
ability to meet contractual obligations to be similarly affected by changes in economic, political or
other conditions. Concentrations indicate the relative sensitivity of the Parent Company’s
performance to developments affecting a particular industry or geographic location.
The Parent Company manages concentration risks by setting exposure limits to borrowing groups,
industries, and where appropriate, on products and facilities. These limits are reviewed as the need
arises but at least annually.
In order to avoid excessive concentrations of risk, the Parent Company’s policies and procedures
include specific guidelines to focus on maintaining a diversified portfolio. Identified concentrations
of risks are controlled and managed accordingly.
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Credit Risk
Credit risk is the risk of loss resulting from the failure of a borrower or counterparty to perform its
obligations during the life of the transaction. This includes risk of non-payment by borrowers or
issuers, failed settlement of transactions and default on contracts.
The Parent Company drives credit risk management fundamentally via its Credit Policy Manual
(CPM), the provisions of which are regularly reviewed and updated to reflect changing risk
conditions. The CPM defines the principles and parameters governing credit activities, ensuring that
each account’s creditworthiness is thoroughly understood and regularly reviewed. Relationship
Managers assume overall responsibility for the management of credit exposures while middle and
back office functions are clearly defined to provide independent checks and balance to credit risk-
taking activities. A system of approving and signing limits ensures adequate senior management
involvement for bigger and more complex transactions. Large exposures of the Group are kept under
rigorous review as these are subjected to stress testing and scenario analysis to assess the impact of
changes in market conditions or key risk factors (examples are economic cycles, interest rate,
liquidity conditions or other market movements) on its profile and earnings.
The risk management structure of policies, accountabilities and responsibilities, controls and senior
management involvement is similarly in place for non-performing assets.
Derivative financial instruments

Credit risk in respect of derivative financial instruments is limited to those with positive fair values,
which are included under ‘Financial assets at FVTPL’. As a result, the maximum credit risk, without
taking into account the fair value of any collateral and netting agreements, is limited to the amounts in
the statements of financial position.
Credit-related commitments
The Parent Company makes available to its customers, guarantees which may require the Parent
Company to make payments on their behalf and enter into commitments to extend credit lines to
secure their liquidity needs. Letters of credit and guarantees (including standby letters of credit)
commit the Parent Company to make payments on behalf of customers in the event of a specific act,
generally related to the import or export of goods. Such commitments expose the Parent Company to
similar risks to loans and these are mitigated by the same control processes and policies. This also
includes the unutilized credit limit of the Group’s credit card customers.
Maximum exposure to credit risk of on-balance sheet credit risk exposures with collaterals held or
other credit enhancements
The tables below show the maximum exposure to on-balance sheet credit risk exposures of the Group
and the Parent Company after taking into account any collaterals held or other credit enhancements
(amounts in millions):
Consolidated
Maximum Financial
Carrying Fair Value of Exposure to Effect of
Amount Collateral Credit Risk Collateral
December 31, 2017
Credit risk exposure relating to
on-balance sheet assets
Receivable from customers - net
(exclusive of SBEI):
Corporate lending P
=303,883 P
=131,336 P
=236,118 P
=67,765
Consumer lending 15,156 7,422 11,287 3,869
Small business lending 4,691 3,700 2,910 1,781
Residential mortgages 35,426 24,368 20,604 14,822
(Forward)
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Consolidated
Maximum Financial
(SBEI):
Corporate P
=959 P
=2,233 P
=249 P
=710
Individual 284 1,306 171 113
Other receivables 6,650 707 5,987 663
Credit card receivables - individual 3,141 – 3,141 –
P
=370,190 P
=171,072 P
=280,467 P
=89,723
December 31, 2016
Credit risk exposure relating to
on-balance sheet assets
(exclusive of SBEI):
Corporate lending P
=242,919 P
=86,694 P
=194,275 P
=48,644
Small business lending 3,004 1,616 2,059 945
(SBEI):
Corporate 626 620 225 401
Individual 101 1,110 32 69
Credit card receivables - individual 2,250 – 2,250 –
P
=289,658 P
=103,815 P
=231,891 P
=57,767
Parent Company
Maximum Financial
December 31, 2017
Credit risk exposure relating
to on-balance sheet assets
Receivable from customers - net:
Corporate lending P
=304,637 P
=131,336 P
=236,872 P
=67,765
Small business lending 4,691 3,700 2,910 1,781
Credit card receivables – individual 3,141 – 3,141 –
P
=367,988 P
=166,914 P
=279,662 P
=88,326
Parent Company
Maximum Financial
December 31, 2016
Credit risk exposure relating
to on-balance sheet assets
Receivable from customers - net:
Corporate lending P
=243,415 P
=86,694 P
=194,771 P
=48,644
Small business lending 3,004 1,616 2,059 945
Credit card receivables – individual 2,250 – 2,250 –
P
=288,842 P
=102,072 P
=231,550 P
=57,292
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The maximum exposure to credit risks for the other financial assets is limited to the carrying value as
of December 31, 2017 and 2016.
Credit card receivables and receivables of SBEI are presented separately for the purpose of
identifying receivables that are subjected to different credit risk rating systems.
Other receivables include unquoted debt instruments, accrued interest receivable, accounts receivable,
sales contracts receivable and dividend receivable.
Risk concentrations of the maximum exposure to credit risk
The Group considers concentration risk to be present in its loans and receivables when the total
exposure to a particular industry exceeds 15.0% of the total loan portfolio (internal definition for most
industry segments), which is more conservative than the BSP requirement of 30.0%.
The distribution of financial assets and off-balance sheet items by industry sector of the Group and
the Parent Company, before taking into account collateral held or other credit enhancements
(maximum exposure) follows (amounts in millions):
Consolidated
Loans and
Loans and Financial Advances to
Receivables Investments* Banks** Others*** Total
December 31, 2017
Financial intermediaries P
= 38,096 P
= 198,015 P
= 133,618 P
= 6,807 P
= 376,536
Power, electricity and water distribution 69,713 98 – 48,675 118,486
Wholesale and retail trade 65,278 7,213 – 4,098 76,589
Trading and manufacturing 42,144 14 – 9,263 51,421
Transportation, storage and communication 22,257 4,520 – 21,377 48,154
Real estate 42,476 3,898 – 77 46,451
Others 90,226 20,628 – 34,038 144,892
P
= 370,190 P
= 234,386 P
= 133,618 P
= 124,335 P
= 862,529
December 31, 2016
=32,833 P
=217,658 P
=133,606 P
=439 P
=384,536
Power, electricity and water distribution 49,840 2,874 – 36,431 89,145
Real estate 41,809 1,395 – 3,077 46,281
Others 69,308 17,124 – 40,211 126,643
P
=289,658 P
=249,521 P
=133,606 P
=103,057 P
=775,842
Parent Company
Loans and
December 31, 2017
= 39,095 P
= 198,015 P
= 133,533 P
= 6,805 P
= 377,448
Power, electricity and water distribution 69,712 1 – 48,675 118,388
Real estate 42,475 3,898 – 75 46,448
Others 87,035 20,579 – 34,038 141,652
P
= 367,988 P
= 234,240 P
= 133,533 P
= 124,331 P
= 860,092
(Forward)
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Parent Company
Loans and
December 31, 2016
=33,375 P
=217,658 P
=138,419 =
P439 P
=389,891
Power, electricity and water distribution 49,840 2,874 – 36,431 89,145
Real estate 41,772 1,395 – 3,077 46,244
Others 67,990 17,068 – 40,193 125,251
P
=288,842 P
=249,465 P
=138,419 P
=103,039 P
=779,765
* Consists of Financial assets at FVTPL and FVTOCI, and Investment securities at amortized cost
** Consists of Other cash items, Due from BSP, Due from other banks, Interbank loans receivables and SPURA and Cash collateral
deposits (included in ‘Other assets’)
*** Consists of Contingent liabilities relating to inward and outward bills for collections, outstanding guarantees, letters of credit,
unutilized credit limit of credit card holders, committed loan lines, security deposits and financial guarantees with commitment
For details of the composition of the loans and receivables portfolio, refer to Note 12.
Offsetting of financial assets and financial liabilities

The Parent Company has various derivative financial instruments with various counterparties
transacted under the International Swaps and Derivatives Association (ISDA) which are subject to
enforceable master netting agreements. Under the agreements, the Parent Company has the right to
settle its derivative financial instruments either: (1) upon election of the parties; or (2) in the case of
default and insolvency or bankruptcy. The Parent Company, however, has no intention to net settle
or to gross settle the accounts simultaneously. Also, the enforceability of netting upon default is
contingent on a future event, and so the offsetting criteria under PAS 32 are not met. Consequently,
the gross amount of the derivative asset and the gross amount of the derivative liability are presented
separately in the Parent Company’s statements of financial position.
Cash collaterals have also been received from and pledged to the counterparties for the net amount of
exposures from the derivative financial instruments. These cash collaterals do not meet the offsetting
criteria in under PAS 32 since it can only be set off against the net amount of the derivative asset and
derivative liability in the case of default and insolvency or bankruptcy, in accordance with an
associated collateral arrangement.
The Parent Company has entered into sale and repurchase agreements with various counterparties that
are accounted for as collateralized borrowing. The Parent Company has also entered into a reverse
sale and repurchase agreements with various counterparties that are accounted for as a collateralized
lending. These transactions are subject to a global master repurchase agreement with a right of set-
off only against the collateral securities upon default and insolvency or bankruptcy and therefore do
not meet the offsetting criteria under PAS 32. Consequently, the related SSURA is presented
separately from the collateral securities in the Parent Company’s statements of financial position.
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The table below presents the recognized financial instruments of the Group and the Parent Company
that are offset, or subject to enforceable master netting agreements or other similar arrangements but
not offset, as at December 31, 2017 and 2016, taking into account the effects of over-collateralization.
Gross amounts Effect of remaining rights of
set-off in Net amount set-off that do not meet PAS 32
Gross amounts of accordance with presented in offsetting criteria
recognized the PAS 32 statements of
financial offsetting financial Financial Financial
instruments criteria position instruments collateral Net exposure
[a] [b] [c]=[a]-[b] [d] [e]=[c]-[d]
2017
Financial Assets
Derivative assets (Notes 6 and 9) P
= 1,465,486 =
P− P
= 1,465,486 P
= 569,866 (P
=168,338) P
= 1,063,958
Derivative liabilities including designated
as hedges (Notes 6 and 19) P
= 2,013,182 =
P− P
= 2,013,182 P
= 569,866 P
= 76,655 P
= 1,366,661
SSURA (Note 20) 107,630,850 − 107,630,850 − 107,630,850 −
P
= 109,644,032 =
P− P
= 109,644,032 P
= 569,866 P
= 107,707,505 P
= 1,366,661
2016
Financial Assets
Derivative assets (Notes 6 and 9) P
=1,532,938 =
P− P
=1,532,938 =
P417,073 =
P− 1,115,865
Derivative liabilities including designated
as hedges (Notes 6 and 19) =
P660,091 =
P– =
P660,091 =
P417,073 P
=4,972 =
P238,046
SSURA (Note 20) 143,445,281 – 143,445,281 − 143,445,281 −
=
P144,105,372 =
P− =
P144,105,372 =
P417,073 =
P143,450,253 =
P238,046
Collateral and other credit enhancements

The amount and type of collateral required depends on the assessment of the credit risk of the
borrower or counterparty. The Group follows guidelines on the acceptability of types of collateral
and valuation parameters.
The main types of collateral obtained are as follows:

∂ For corporate accounts - cash, guarantees, securities and physical collaterals (e.g., real estate,
chattels, inventory, etc.); as a general rule, commercial, industrial and residential lots are
preferred.
∂ For retail lending - mortgages on residential properties and financed vehicles.
Management monitors the market value of real property collateral on an annual basis and as needed
for marketable securities to preserve collateral cover. The existing market value of collateral is
considered during the review of the credit facilities and adequacy of the allowance for credit losses.
It is the Parent Company’s policy to dispose assets acquired in an orderly fashion. The proceeds from
the sale of the foreclosed assets (classified as ‘Investment properties’ in the statements of financial
position) are used to reduce or repay the outstanding claim. In general, the Parent Company does not
use repossessed properties for business.
Credit quality per class of financial assets

In compliance with BSP Circular No. 439, the Parent Company has developed and continually
reviews and calibrates its internal risk rating system for large exposures aimed at uniformly assessing
its credit portfolio in terms of risk profile. Where appropriate, it obtains security, enters into master
netting agreements, and limits the duration of exposures to maintain and even further enhance the
quality of the Parent Company’s credit exposures.
The credit quality of financial assets is monitored and managed using internal ratings and where
available, external ratings.
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The credit quality of trading and financial investment securities is generally monitored through the
external ratings of eligible external credit rating institutions. Presented below is the mapping of the
credit risk rating from external rating agencies to the Parent Company’s internal risk rating for
investment securities:
Agency High Grade

S&P AAA AA+ AA AA- A+ A A- BBB+ BBB BBB-
Moody's Aaa Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3
Fitch AAA AA+ AA AA- A+ A A- BBB+ BBB BBB-
PhilRatings AAA Aa+ Aa Aa- A+ A A- Baa+ Baa Baa-
Agency Standard Grade Substandard Grade

S&P BB+ BB BB- B+ B B- Below B-
Moody's Ba1 Ba2 Ba3 B1 B2 B3 Below B3
Fitch BB+ BB BB- B+ B B- Below B-
PhilRatings Ba+ Ba Ba- B+ B B- Below B-
For loan exposures, the credit quality is generally monitored using its internal ratings system. It is the
Parent Company’s policy to maintain accurate and consistent risk ratings across the credit portfolio.
This facilitates management to focus on major potential risk and the comparison of credit exposures
across all lines of business, demographics and products. The rating system has two parts, namely, the
borrower’s risk rating and the facility risk rating. It is supported by a variety of financial analytics,
combined with an assessment of management and market information to provide the main inputs for
the measurement of credit or counterparty risk. All internal risk ratings are tailored with various
categories and are derived in accordance with the Group’s rating policy. The attributable risk ratings
are assessed and updated regularly.
The Group uses Internal Credit Risk Ratings (ICRR) to classify the credit quality of its receivables
portfolio. This is currently undergoing upgrade to enhance credit evaluation parameters across
different market segments and achieve a more sound and robust credit risk assessment.
The description of the loan grades used by the Group for receivable from customers, except credit
card receivables and receivables of SBEI, are as follows:
A. Large Corporate Scorecard
High Grade (ICRR 1 to ICRR 5)

Accounts belonging to this category have a low probability of defaulting on their obligations
within the coming year. A comfortable degree of stability and diversity can be found in these
borrowers. Borrowers with this rating have access to the capital markets and have a history of
successful financial performance.
Standard Grade (ICRR 6 to ICRR 10)

Accounts whose financial ratios exhibit an amount of buffer though somewhat limited. These
accounts can withstand minor economic weaknesses but may suffer if conditions deteriorate in a
significant way and therefore, default risk is present under such adverse conditions. Repayment
ability is more or less assured if economic and industry conditions remain stable.
Substandard Grade (ICRR 11 to ICRR 14)

Accounts for which default risk are very much present are included in this category. The
financial ratios of the accounts are virtually at the inflection point separating the current loans and
potential problem loans. Any deterioration on the economic or industry front will push the
accounts into NPL category in the future.
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Unrated
This category includes accounts not required to be rated under BSP regulation, equity securities,
accounts receivables and sales contract receivables. The Group is currently building a separate
credit rating system for its consumer loans portfolio to enhance credit evaluation parameters
across different market segments and achieve a more sound and robust credit risk assessment.
B. Middle Market Scorecard

Accounts belonging to this category have a low probability of defaulting on their obligations
within the coming year. A comfortable degree of stability and diversity can be found in these
borrowers. Borrowers with this rating have access to the capital markets and have a history of
successful financial performance.
ICCR 4 is the maximum/highest rating class that a Middle Market account can attain. The rating
classes for the middle market are comparable to those for the large corporate group. In other words,
a “4” in the middle market is comparable to a “4” in the large corporate.

Accounts whose financial ratios exhibit an amount of buffer though somewhat limited. These
accounts can withstand minor economic weaknesses but may suffer if conditions deteriorate in a
significant way and therefore, default risk is present under such adverse conditions. Repayment
ability is more or less assured if economic and industry conditions remain stable.
Substandard Grade (ICRR 11 to ICRR 14)

Accounts for which default risk are very much present are included in this category. The
financial ratios of the accounts are virtually at the inflection point separating the current loans and
potential problem loans. Any deterioration on the economic or industry front will push the
accounts into NPL category in the future.
For credit card receivables, the Parent Company classify accounts that are neither past due nor
impaired as follows:
∂ High Grade - Accounts with tenure of 24 months or more which are under the current
classification and have never reached 30 days past due for the last 12 months from year-end.
∂ Standard Grade - Accounts with tenure of 12 months or more which are under the current
∂ Substandard Grade - Accounts with tenure of less than 12 months which are under the current
∂ Unrated - Current but non-active accounts and accounts that have reached 30 days past due for
the last 12 months from year-end.
For SBEI's receivable portfolio, the Group classifies accounts that are neither past due nor impaired
as follows:
∂ High Grade - receivables from counterparties with no history of default and with apparent ability
to settle the obligation. In case of receivables from customers, the outstanding amount must be
more than 200.0% secured by collateral.
∂ Standard Grade - receivable from counterparties with no history of default, with apparent ability
to settle the obligation and the outstanding amount must be 100.0% - 200.0% secured by
collateral.
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∂ Substandard Grade - receivable from counterparties with history of default and partially secured
or unsecured accounts.
∂ Unrated - Receivables from employees and refundable deposits.
Financial assets of the Group and the Parent Company, for which no available external ratings are
available, are classified as unrated.
The tables below show the credit quality by class of financial assets (gross of allowance for credit
losses and net of unearned discounts and deferred credits) of the Group and the Parent Company:
Consolidated
Neither Past Due nor Individually Impaired Past Due but
Standard Substandard not Individually Individually
High Grade Grade Grade Unrated Impaired Impaired Total
December 31, 2017
Financial assets at FVTPL:
HFT investments:
Government securities = 2,965,152
P =–
P P–
= =–
P P–
= P–
= = 2,965,152
P
Private bonds 37,464 99,842 – 9,056 – – 146,362
Equity securities – – – 8 – – 8
Total HFT investments 3,002,616 99,842 – 9,064 – – 3,111,522
Derivative assets:
Currency forwards 488,568 9,244 10,810 98,649 – – 607,271
Interest rate swaps 666,382 – – – – – 666,382
Cross-currency swaps 85,606 – – 105,965 – – 191,571
Interest rate future 262 – – – – – 262
Total derivative assets 1,240,818 9,244 10,810 204,614 – – 1,465,486
Others 370 – – 15,117 – – 15,487
Total financial assets at FVTPL 4,243,804 109,086 10,810 228,795 – – 4,592,495
Financial assets at amortized cost:
Due from BSP 56,592,042 – – – – – 56,592,042
Due from other banks 69,605,805 – – – – – 69,605,805
Interbank loans receivable and SPURA
with the BSP 5,688,647 – – – – – 5,688,647
Investment securities at amortized cost:
Treasury bonds 175,794,191 – – – – – 175,794,191
Private bonds 28,409,907 – – 7,530,250 – – 35,940,157
Treasury notes and bills 17,858,967 – – – – – 17,858,967
Total investment securities
at amortized cost 222,063,065 – – 7,530,250 – – 229,593,315
Receivable from customers:
Corporate lending 14,954,179 196,646,304 70,070,555 7,784,296 70,836 16,933,775 306,459,945
Consumer lending – – – 15,437,549 283,296 – 15,720,845
Small business lending 3,751 371,620 40,530 4,251,488 30,182 79,034 4,776,605
Residential mortgages – 579,689 43,988 34,556,334 648,911 – 35,828,922
Credit card receivables - individual 1,260,777 535,328 636,435 676,243 137,517 – 3,246,300
Receivable from customers (SBEI):
Corporate 24,442 934,214 – – – – 958,656
Individual 214,621 9,050 798 – 60,394 – 284,863
Total receivable from
customers (SBEI) 239,063 943,264 798 – 60,394 – 1,243,519
Total receivable from customers 16,457,770 199,076,205 70,792,306 62,705,910 1,231,136 17,012,809 367,276,136
Other receivables 3,881,648 1,634,439 286,676 782,011 21,284 158,672 6,764,730
Other assets 1,016,454 – – 321,154 – – 1,337,608
Total financial assets at amortized cost 375,305,431 200,710,644 71,078,982 71,339,325 1,252,420 17,171,481 736,858,283
Financial assets at FVTOCI 43,081 – – 157,190 – – 200,271
Total = 379,592,316
P = 200,819,730
P = 71,089,792
P = 71,725,310
P = 1,252,420
P = 17,171,481
P = 741,651,049
P
Consolidated
December 31, 2016
HFT investments:
Government securities =1,818,898
P =–
P =–
P =–
P =–
P =–
P =1,818,898
P
Private bonds 8,944 – – 12,478 – – 21,422
Equity securities – – – 310 – – 310
Total HFT investments 1,827,842 – – 12,788 – – 1,840,630
Derivative assets:
Interest rate swaps 542,914 – 6,105 – – – 549,019
Cross-currency swaps 21,522 – 1,175 70,413 – – 93,110
Others – – – 15,116 – – 15,116
(Forward)
*SGVFS027055*
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Consolidated
Due from BSP =71,662,840
P =–
P =–
P =–
P =–
P =–
P =71,662,840
P
with the BSP 690,309 – – – – – 690,309
Treasury bonds 217,751,803 – – – – – 217,751,803
Private bonds 19,851,714 – – 7,838,653 – – 27,690,367
Treasury notes and bills 511,478 – – – – – 511,478
Total investment securities
at amortized cost 238,114,995 – – 7,838,653 – – 245,953,648
Consumer lending – – – 8,580,930 112,525 61,877 8,755,332
Small business lending – 348,287 45,775 2,539,248 8,263 108,853 3,050,426
Residential mortgages – 577,017 101,228 24,921,112 417,973 26,017,330
Credit card receivables - individual 808,865 434,146 575,199 422,718 91,779 – 2,332,707
Receivable from customers (SBEI):
Corporate 12,570 94,303 515,380 – 3,341 – 625,594
Individual 16,328 32,904 5,845 – 46,439 – 101,516
Total receivable from
customers (SBEI) 28,898 127,207 521,225 – 49,780 – 727,110
Total receivable from customers 15,686,982 122,402,982 88,734,864 45,967,623 797,974 13,126,392 286,716,817
Other receivables 4,743,027 856,230 447,868 535,492 5,196 143,796 6,731,609
Other assets 2,567,297 − – 298,258 – – 2,865,555
Total financial assets at amortized cost 397,409,132 123,259,212 89,182,732 54,640,026 803,170 13,270,188 678,564,460
Financial assets at FVTOCI 42,506 – – 135,740 – – 178,246
Total =400,696,635
P =123,279,586
P =89,205,911
P =54,875,900
P =803,170
P =13,270,188
P =682,131,390
P
Parent Company
Neither Past Due nor Individually Impaired
Past Due but
December 31, 2017
HFT investments:
Government securities = 2,965,152
P =–
P P–
= =–
P P–
= P–
= = 2,965,152
P
Private bonds 37,464 2,746 – 9,056 – – 49,266
Total HFT investments 3,002,616 2,746 – 9,056 – – 3,014,418
Derivative assets:
Interest rate swaps 666,382 – – – – – 666,382
Cross-currency swaps 85,606 – – 105,965 – – 191,571
Interest rate future 262 – – – – – 262
Others 370 – – 15,095 – – 15,465
Due from BSP 56,592,042 – – – – – 56,592,042
with the BSP 5,688,647 – – – – – 5,688,647
Treasury bonds 175,794,191 – – – – – 175,794,191
Private bonds 28,409,907 – – 7,530,250 – – 35,940,157
Treasury notes and bills 17,858,967 – – – – – 17,858,967
Total investment securities at amortized
cost 222,063,065 – – 7,530,250 – – 229,593,315
Small business lending 3,751 371,620 40,530 4,251,442 30,182 79,035 4,776,560
Residential mortgages – 579,689 43,988 34,330,293 648,911 – 35,602,881
Credit card receivables - individual 1,260,777 535,328 636,435 676,243 137,517 – 3,246,300
Total receivable from customers 16,218,707 198,732,941 71,340,772 60,941,538 1,123,589 16,988,753 365,346,300
Other receivables 3,875,164 1,275,554 300,355 804,279 21,284 122,744 6,399,380
Other assests 1,016,454 – – 317,070 – – 1,333,524
Financial assets at FVTOCI – – – 151,370 – – 151,370
Total = 379,218,204
P = 200,020,485
P = 71,651,937
P = 69,973,272
P = 1,144,873
P = 17,111,497
P = 739,120,268
P
*SGVFS027055*
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Parent Company
Neither Past Due nor Individually Impaired
Past Due but
December 31, 2016
HFT investments:
Government securities =1,818,898
P =–
P =–
P =–
P =–
P =–
P =1,818,898
P
Private bonds 8,944 – – 12,478 – – 21,422
Total HFT investments 1,827,842 – – 12,478 – – 1,840,320
Derivative assets:
Interest rate swaps 542,914 – 6,105 – – – 549,019
Cross-currency swaps 21,522 – 1,175 70,413 – – 93,110
Others − – – 15,093 – – 15,093
Due from BSP 71,423,852 – – – – – 71,423,852
Treasury bonds 217,751,803 – – – – – 217,751,803
Private bonds 19,851,714 – – 7,838,653 – – 27,690,367
Treasury notes and bills 511,478 – – – – – 511,478
Total investment securities at amortized
cost 238,114,995 – – 7,838,653 – – 245,953,648
Receivable from customers: –
Small business lending – 348,287 45,725 2,539,248 8,263 108,853 3,050,376
Residential mortgages – 577,017 101,228 24,664,836 417,973 25,761,054
Credit card receivables - individual 808,865 434,146 575,199 422,718 91,779 – 2,332,707
Total receivable from customers 15,658,084 122,275,775 88,710,603 45,717,310 748,194 13,064,515 286,174,481
Other receivables 4,696,324 549,468 455,923 580,196 5,196 107,328 6,394,435
Other assests 2,567,297 – – 280,284 – – 2,847,581
Total financial assets at amortized cost 396,341,679 122,825,243 89,166,526 54,416,443 753,390 13,171,843 676,675,124
Financial assets at FVTOCI – – – 122,820 – – 122,820
Total =399,586,676
P =122,845,617
P =89,189,705
P =54,639,064
P =753,390
P =13,171,843
P =680,186,295
P
As of December 31, 2017 and 2016, allowance on individually impaired receivables amounted to
P
=2.4 billion and =
P2.7 billion, respectively for the Group, and =
P2.4 billion and P
=2.6 billion,
respectively for the Parent Company (see Note 12).
The following table provides the analysis of the Group and the Parent Company’s restructured
receivables by class (included in the preceding table for the credit quality by class of financial assets)
as of December 31, 2017 and 2016:
Consolidated
Neither Past Due Past Due But
Nor Individually Not Individually Individually
Impaired Impaired Impaired Total
December 31, 2017
Corporate lending P
=6,163 P
=2,762 P
=55,400 P
=64,325
Consumer lending 6,635 1,658 – 8,293
Small business lending – 4,569 9,250 13,819
Residential mortgages 5,759 – – 5,759
Total P
=18,557 P
=8,989 P
=64,650 P
=92,196
December 31, 2016
Corporate lending P
=4,085 P
=2,762 P
=55,401 P
=62,248
Small business lending 4,848 – 11,222 16,070
Total P
=36,695 P
=15,039 P
=79,889 P
=131,623
*SGVFS027055*
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Parent Company
Neither Past Due Past Due But
Nor Individually Not Individually Individually
Impaired Impaired Impaired Total
December 31, 2017
Corporate lending P
=6,163 P
=2,762 P
=55,400 P
=64,325
Small business lending – 4,569 9,250 13,819
Total P
=13,061 P
=8,358 P
=64,650 P
=86,069
December 31, 2016
Corporate lending P
=4,085 P
=2,762 P
=55,401 P
=62,248
Small business lending 4,848 – 11,222 16,070
Total P
=36,695 P
=15,039 P
=66,623 P
=118,357
Aging analysis of past due but not impaired financial assets per class
The table below shows the aging analysis of past due but not impaired loans receivables per class of
the Group and the Parent Company.
Consolidated
Within
30 days 31 to 60 Days 61 to 90 days Over 90 days Total
December 31, 2017
Corporate lending P
= 44,504 P
= 20,570 P
= 3,001 P
= 2,761 P
= 70,836
Consumer lending 76,819 59,887 115,657 228,844 481,207
Residential mortgages 311 27,265 146,606 474,729 648,911
Small business lending – 2,058 14,231 13,893 30,182
Others 210 683 5,112 15,279 21,284
Total P
= 121,844 P
= 110,463 P
= 284,607 P
= 735,506 P
= 1,252,420
December 31, 2016
Corporate lending P
=12,004 P
=4,404 =
P– P
=104,587 P
=120,995
Residential mortgages 50,022 74,057 44,365 249,529 417,973
Small business lending 5,512 116 – 2,635 8,263
Others 1,131 1,173 1,458 1,434 5,196
Total P
=154,575 P
=136,917 P
=86,378 P
=425,300 P
=803,170
Parent Company
Within
30 days 31 to 60 Days 61 to 90 days Over 90 days Total
December 31, 2017
Corporate lending P
= 44,504 P
= 20,570 P
= 3,000 P
= 2,762 P
= 70,836
Residential mortgages 311 27,265 146,606 474,729 648,911
Small business lending – 2,058 14,231 13,893 30,182
Others 210 683 5,112 15,279 21,284
Total P
= 60,096 P
= 109,225 P
= 273,213 P
= 702,339 P
= 1,144,873
December 31, 2016
Corporate lending P
=8,663 P
=4,404 =
P– P
=104,587 P
=117,654
Residential mortgages 50,022 74,057 44,365 249,529 417,973
Small business lending 5,512 116 – 2,635 8,263
Others 1,131 1,173 1,458 1,434 5,196
Total P
=104,817 P
=136,917 P
=86,356 P
=425,300 P
=753,390
Impairment assessment
The Group and the Parent Company recognize impairment losses based on the results of its individual
and collective assessment of its credit exposures. Impairment has taken place when there is a
presence of known difficulties in the servicing of cash flows by counterparties, a significant credit
rating downgrade, infringement of the original terms of the contract has happened, or when there is
*SGVFS027055*
- 53 -
inability to pay principal or interest overdue beyond a certain threshold. These and other factors,
either singly or together with other factors, constitute observable events and/or data that meet the
definition of an objective evidence of impairment.
Liquidity Risk
Liquidity risk is defined as the risk that the Group will encounter difficulty in meeting obligations
associated with financial liabilities that are settled by delivering cash or another financial asset.
Liquidity risk arises because of the possibility that the Group might be unable to meet its payment
obligations when they fall due under both normal and stress circumstances. Liquidity risk is
monitored and managed using Maximum Cumulative Outflows (MCO) limits. A Contingency
Funding Plan is likewise in place to ensure readiness for identified liquidity crisis situation.
The Parent Company’s Asset and Liability Committee (ALCO) is directly responsible for market and
liquidity risk exposures. ALCO regularly monitors the Parent Company’s positions and sets the
appropriate transfer pricing rate to effectively manage movements of funds across business activities.
Analysis of financial instruments by remaining contractual maturities

The table below shows the maturity profile of the Group’s and the Parent Company’s financial
instruments, based on the Group’s and the Parent Company’s internal methodology that manages
liquidity based on remaining contractual undiscounted cash flows.
Financial assets
Maturity profile of financial assets held for liquidity purposes is shown below. Analysis of equity
and debt securities at FVTPL into maturity groupings is based on the expected date on which these
assets will be realized. For other assets, the analysis into maturity grouping is based on the remaining
period from the end of the reporting period to the contractual maturity date or if earlier, the expected
date the assets will be realized.
Financial liabilities
The maturity grouping is based on the remaining period from the end of the reporting period to the
contractual maturity date, except for savings deposits which are based on expected withdrawals.
When a counterparty has a choice of when the amount is paid, the liability is allocated to the earliest
period in which the Group can be required to pay.
Consolidated
61 to 181 to Over
On Demand Within 30 Days 31 to 60 Days 180 Days 360 Days 360 Days Total
December 31, 2017
Financial Assets
HFT investments:
Government securities P
=– P
=2,965,152 P
=– P
=– P
=– P
=– P
=2,965,152
Private bonds – 146,362 – – – – 146,362
Equity securities – 8 – – – – 8
Total HFT investments – 3,111,522 – – – – 3,111,522
Others – – – – – 15,487 15,487
Total financial assets at FVTPL – 3,111,522 – – – 15,487 3,127,009
COCI and due from BSP 64,548,409 – – – – – 64,548,409
SPURA with BSP – 5,580,563 – – 114,200 – 5,694,763
Investment securities
at amortized cost – 964,796 1,517,748 3,750,188 3,886,382 273,313,174 283,432,288
Receivable from customers and
other receivables 1,797,286 56,631,280 34,276,154 56,534,864 25,839,832 295,609,425 470,688,841
Financial assets at FVTOCI – – – – – 200,271 200,271
Total financial assets P
=135,951,500 P
=66,288,161 P
=35,793,902 P
=60,285,052 P
=29,840,414 P
=569,138,357 P
=897,297,386
(Forward)
*SGVFS027055*
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Consolidated
61 to 181 to Over
Deposit liabilities:
Demand P
=109,706,357 P
=– P
=– P
=– P
=– P
=– P
=109,706,357
Savings 110,061,024 761,332 594,423 1,710,073 2,184,609 2,773,673 118,085,134
Time – 43,954,509 27,572,930 36,034,158 17,875,690 43,297,151 168,734,438
LTNCD – – 225,719 220,651 449,147 20,401,101 21,296,618
Total deposit liabilities 219,767,381 44,715,841 28,393,072 37,964,882 20,509,446 66,471,925 417,822,547
Bills payable and SSURA – 164,821,820 14,840,621 6,167,051 1,318,635 8,417,185 195,565,312
Subordinated note – 137,361 – 134,375 273,229 13,135,417 13,680,382
Notes payable – – 302,409 – 297,479 16,180,420 16,780,308
Acceptances payable – – – – – 684,690 684,690
Margin deposits and cash letters of credit – – – – – 650,277 650,277
Manager’s and certified
checks outstanding – 3,607,138 – – – – 3,607,138
Accrued interest, expense
and other liabilities – 8,716,619 – – – 458,105 9,174,724
Total financial liabilities P
=219,767,381 P
=221,998,779 P
=43,536,102 P
=44,266,308 P
=22,398,789 P
=105,998,019 P
=657,965,378
Consolidated
61 to 181 to Over
December 31, 2016
Financial Assets
HFT investments:
Government securities =
P– =
P1,818,898 =
P– =
P– =
P– =
P– =
P1,818,898
Private bonds – 21,422 – – – – 21,422
Equity securities – 310 – – – – 310
Others – – – – – 15,116 15,116
SPURA with BSP – 690,395 – – – – 690,395
Investment securities
at amortized cost – 1,139,115 2,182,622 4,500,545 3,986,321 298,373,860 310,182,463
other receivables 1,029,137 54,004,350 30,811,729 47,271,192 15,369,638 221,865,137 370,351,183
Total financial assets =
P144,328,469 =
P57,674,490 =
P32,994,351 =
P51,771,737 =
P19,355,959 =
P 520,432,359 =
P826,557,365
Demand =
P92,625,208 =
P– =
P– =
P– =
P– =
P– =
P92,625,208
Savings 98,523,864 9,776,044 1,253,735 2,157,934 17,190,184 12,702,253 141,604,014
Time – 30,505,240 36,420,507 26,385,820 4,963,314 6,923,128 105,198,009
LTNCD – – 140,556 138,264 278,820 10,838,750 11,396,390
Derivative liabilities designated as
hedges – 4,846 – 4,626 – – 9,472
Bills payable and SSURA – 185,797,817 9,969,661 9,143,976 31,067 6,042,277 210,984,798
Manager’s and certified checks
outstanding – 3,055,903 – – – – 3,055,903
Notes payable – – 301,137 – 296,228 16,709,732 17,307,097
Accrued interest, expense
and other liabilities – 8,670,913 – – – 435,032 9,105,945
Total financial liabilities =
P191,149,072 =
P237,948,124 =
P48,085,596 =
P37,964,995 =
P23,032,842 =
P68,465,716 =
P606,646,345
Parent Company
Within 61 to 181 to Over
On Demand 30 Days 31 to 60 Days 180 Days 360 Days 360 Days* Total
December 31, 2017
Financial Assets
HFT investments:
=– P
=2,965,152 P
=– P
=– P
=– P
=– P
=2,965,152
Private bonds – 49,266 – – – – 49,266
Others – – – – – 15,465 15,465
(Forward)
*SGVFS027055*
- 55 -
Parent Company
On Demand 30 Days 31 to 60 Days 180 Days 360 Days 360 Days* Total
COCI and due from BSP P
=64,548,384 P
=– P
=– P
=– P
=– P
=– P
=64,548,384
SPURA with BSP – 5,580,563 – – 114,200 – 5,694,763
Investment securities at
amortized cost – 964,796 1,517,748 3,750,188 3,886,382 273,313,174 283,432,288
other receivables – 56,578,841 34,262,479 56,534,787 25,839,640 295,605,810 468,821,557
Total financial assets P
=134,068,705 P
=66,138,618 P=35,780,227 P
=60,284,975 P
=29,840,222 P
=569,085,819 P
=895,198,566
Demand P
=110,512,177 P
=– P
=– P
=– P
=– P
=– P
=110,512,177
Savings 110,245,127 997,232 867,892 1,873,705 2,184,609 2,773,673 118,942,238
Time – 44,201,672 27,588,753 36,034,158 17,875,690 43,297,151 168,997,424
LTNCD – – 225,719 220,651 449,147 20,401,101 21,296,618
Bills payable and SSURA – 164,821,820 14,840,621 6,167,051 1,318,635 8,267,185 195,415,312
outstanding – 3,607,138 – – – – 3,607,138
Notes payable – – 302,409 – 297,479 16,180,420 16,780,308
Accrued interest, expense and other
liabilities – 6,764,296 – – – 574,584 7,338,880
Total financial liabilities P
=220,757,304 P
=220,529,519 P=43,825,394 P
=44,429,940 P
=22,398,789 P
=105,964,498 P
=657,905,444
December 31, 2016
Financial Assets
HFT investments:
Government securities =
P– =
P1,818,898 =
P– =
P– =
P– =
P– =
P1,818,898
Private bonds – 21,422 – – – – 21,422
Others – − – – – 15,093 15,093
Investment securities at
amortized cost – 1,139,115 2,182,622 4,500,545 3,986,321 298,373,860 310,182,463
other receivables – 53,928,330 30,811,695 47,271,102 15,369,389 221,856,734 369,237,250
Financial assets at FVTOCI − − − − − 122,820 122,820
Total financial assets =
P142,997,697 =
P56,907,765 =
P32,994,317 =
P51,771,647 =
P19,355,710 =
P520,368,507 =
P824,395,643
Demand =
P93,458,500 =
P– =
P– =
P– =
P– =
P– =
P93,458,500
Savings 99,663,320 10,915,500 1,253,735 2,157,934 17,190,184 12,702,253 143,882,926
Time – 30,793,496 36,420,507 26,385,820 4,963,314 6,923,128 105,486,265
LTNCD – – 140,556 138,264 278,820 10,838,750 11,396,390
hedges – 4,846 – 4,626 – – 9,472
Bills payable and SSURA – 185,707,817 9,969,661 9,143,976 31,067 6,042,277 210,894,798
outstanding – 3,055,903 – – – – 3,055,903
Notes payable – – 301,137 – 296,228 16,709,732 17,307,097
Accrued interest, expense and other
liabilities – 7,288,995 – – – 519,417 7,808,412
Total financial liabilities =
P193,121,820 =
P237,903,918 =
P48,085,596 =
P37,964,995 =
P23,032,842 =
P68,550,101 =
P608,659,272
*For items within the “Over 360 Days” bucket, further analysis is made based on time buckets.
*SGVFS027055*
- 56 -
The table below shows the contractual expiry by maturity of the Group’s and the Parent Company’s
contingent liabilities and commitments.
On Demand 30 Days 31 to 60 Days 180 Days 360 Days 360 Days Total
December 31, 2017
Committed loan line =
P– P
= 2,000,000 =
P– P
= 17,543,827 P
= 45,518,693 P
= 18,797,391 P
= 83,859,911
Unused commercial letters of credit 742,273 2,666,925 4,021,866 8,707,931 7,192,221 1,505,600 24,836,816
Unutilized credit limit of credit card
holders 13,214,507 – – – – – 13,214,507
Outstanding guarantees 1,220,768 – – – – – 1,220,768
Inward bills for collection 87,552 281,643 122,769 639 7,697 – 500,300
Outward bills for collection 65,894 17,254 211,590 – – – 294,738
Financial guarantees with
commitment – 23,179 22,544 10,754 30,000 – 86,477
P
= 15,330,994 P
= 4,989,001 P
= 4,378,769 P
= 26,263,151 P
= 52,748,611 P
= 20,302,991 P
= 124,013,517
December 31, 2016
Committed loan line =
P– =
P240,000 P
=3,745,455 =
P27,807,940 =
P12,816,901 =
P11,971,852 =
P56,582,148
Unused commercial letters of credit 1,517,465 3,418,344 3,899,469 13,788,490 9,156,361 1,747,498 33,527,627
Unutilized credit limit of credit card
holders 8,562,195 – – – – – 8,562,195
Outstanding guarantees 490,140 1,625,400 54,706 – – 2,170,246
Inward bills for collection 144,947 417,687 921,053 2,779 – – 1,486,466
Outward bills for collection 25,342 201,644 142,876 – – – 369,862
Financial guarantees with
commitment 7,760 50 2,260 49,992 – – 60,062
=
P10,747,849 P
=5,903,125 P
=8,711,113 =
P41,703,907 =
P21,973,262 =
P13,719,350 =
P102,758,606
Market Risk
Market risk is the risk that the fair value or future cash flows of financial instruments will fluctuate
due to changes in market variables such as interest rates, foreign exchange rates and equity prices.
The Group classifies exposures to market risk into either trading or non-trading portfolios and
manages those portfolios separately.
The Group manages its market risk exposures through various established structures, processes and
measurement tools.
∂ Treasury Group, the unit in charge of managing customer flows, liquidity and interest rate risk in
the banking book, and that which handles most of the proprietary trading of the Group, is
assigned with risk limits by the ROC. Similarly, limits are assigned to the equities trading arm of
the Group, Equities Investment Unit.
∂ The Risk Management Group performs daily monitoring of compliance with policies, procedures
and risk limits and accordingly makes recommendations, where appropriate.
∂ The ALCO is the senior decision making body for the management of all market risks related to
asset and liability management, and the trading and accrual books.
∂ VaR is the statistical model used by the Group to measure the market risk of its trading portfolio,
with the confidence level set at 99.0%. On top of VaR and to account for market liquidity, the
Group applies various liquidity factors per product type as approved by the ROC.
The market risk measurement models are subjected to periodic back testing to ensure validity of
market assumptions used.
Other risk management tools utilized by the Parent Company are as follows:
∂ Loss limits
∂ Position and duration limits, where appropriate
∂ Mark-to-market valuation
∂ VaR limits
∂ Earnings-at-Risk (EaR) limits
*SGVFS027055*
- 57 -
Additional risk monitoring tools were likewise adopted to better cope with the fluid market
environment. This came mainly in the form of sensitivity analyses to pinpoint vulnerabilities in terms
of profit or loss and capital erosion.
Interest rate risk

Interest rate risk arises from the possibility that changes in interest rates will affect future cash flows
or the fair value of financial instruments. The Parent Company follows a prudent policy on managing
its assets and liabilities so as to ensure that exposure to fluctuations in interest rates are kept within
acceptable limits.
Interest rate risk exposures are reported via the weekly repricing gap schedule. The repricing gap
report highlights mismatches in the repricing tenors of assets and liabilities. Repricing gaps are
calculated by distributing the statements of financial position accounts into time buckets based on the
next repricing dates of individual items. For non-maturing deposits, distinction is made between the
core (i.e. stable) and non-core portions, where the former is spread in time buckets aligned with
Basel’s IRRBB Document while the latter is bucketed in short-term tenors. The resulting difference
between the amount of the assets and the amount of the liabilities that will reprice within a particular
time bucket constitutes a repricing gap.
The Group employs gap analysis to measure the sensitivity of its assets and liabilities to fluctuations
in market interest rates for any given period. A positive gap occurs when the amount of interest rate-
sensitive assets exceeds the amount of interest rate-sensitive liabilities and is favorable to the Group
during a period of rising interest rates since it is in a better position to invest in higher yielding assets
more quickly than it would need to refinance its interest bearing liabilities. Conversely, during a
period of falling interest rates, a positively gapped position could result in a restrained growth or even
a declining net interest income.
The following tables set forth the asset-liability gap position of the Group and of the Parent Company
as of December 31, 2017 and 2016 (amounts in millions):
Consolidated
30 Days 31 to 60 Days 180 Days 360 Days 360 Days Total
December 31, 2017
Rate-sensitive Financial Assets
HFT investments:
= 2,965 =
P– =
P– =
P– =
P– P
= 2,965
Private bonds 146 – – – – 146
Total HFT investments 3,111 – – – – 3,111
Total financial assets at FVTPL 3,111 – – – – 3,111
Due from BSP and other banks and
with the BSP 69,906 – – – – 69,906
Investment securities at amortized cost – 348 99 98 229,048 229,593
Receivable from customers and other
receivables - gross 51,172 49,692 35,620 19,021 212,227 367,732
Total financial assets at amortized cost 121,078 50,040 35,719 19,119 441,275 667,231
Total rate-sensitive assets 124,189 50,040 35,719 19,119 441,275 670,342
Rate-sensitive Financial Liabilities
Deposit liabilities 141,570 42,475 23,456 19,713 185,963 413,177
Bills payable and SSURA 164,765 14,798 6,128 1,250 7,021 193,962
Notes payable – – – – 14,948 14,948
Subordinated note – – – – 10,000 10,000
Total rate-sensitive liabilities 306,335 57,273 29,584 20,963 217,932 632,087
Asset-Liability Gap (P
=182,146) (P
=7,233) P
= 6,135 (P
=1,844) P
= 223,343 P
= 38,255
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Consolidated
December 31, 2016
HFT investments:
=1,819 =
P– =
P– =
P– =
P– P
=1,819
with the BSP 91,544 – – – – 91,544
Investment securities at amortized cost – 999 – – 244,955 245,954
Bills payable and SSURA 185,929 14,907 4,136 – 5,905 210,877
Notes payable – – – – 14,916 14,916
=169,176) P
=3,208 =
P17,244 (P
=18,184) =
P210,926 =
P44,018
Parent Company
December 31, 2017
HFT investments:
= 2,965 =
P– =
P– =
P– =
P– P
= 2,965
with the BSP 69,820 – – – – 69,820
Investment securities at amortized cost – 348 99 98 229,048 229,593
Notes payable – – – – 14,948 14,948
=186,372) (P
=8,356) P
= 6,134 (P
=1,844) P
= 224,798 P
= 34,360
December 31, 2016
HFT investments:
=1,819 =
P– =
P– =
P– =
P– P
=1,819
with the BSP 90,581 – – – – 90,581
Investment securities at amortized cost – 999 – – 244,955 245,954
Bills payable and SSURA 185,839 14,907 4,136 – 5,905 210,787
Notes payable – – – – 14,916 14,916
=173,340) P
=3,222 =
P17,301 (P
=18,099) =
P211,252 =
P40,336
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The following table provides for the average effective interest rates by period of repricing (or by
period of maturity if there is no repricing) of the Group and of the Parent Company as of
December 31, 2017 and 2016:

Less than 3 months Greater Less than 3 3 months Greater
3 months to 1 year than 1 year months to 1 year than 1 year
December 31, 2017
Peso
Financial Assets
Due from BSP 2.78% – – 2.78% – –
Due from banks 1.00% – – 1.00% – –
Interbank loans 3.13% – – 3.13% – –
Investment securities* 2.64% 2.82% 4.81% 2.64% 2.82% 4.81%
Loans and receivables 5.30% 6.09% 6.81% 5.30% 6.09% 6.81%
Deposit liabilities other than LTNCD 2.42% 2.13% 2.30% 2.42% 2.13% 2.30%
LTNCD – – 5.62% – – 5.62%
Bills payable and SSURA – – 8.00% – – 8.00%
Subordinated note – – 5.46% – – 5.46%
USD
Financial Assets
Due from banks 0.01% – – 0.01% – –
Internank loans receivable and SPURA – – 3.50% – – 3.50%
Investment securities* – – 3.58% – – 3.58%
Deposit liabilities 1.85% 2.06% 2.26% 1.85% 2.06% 2.26%
Bills payable 3.58% 1.87% 2.00% 3.58% 1.87% 2.00%
Notes payable – – 4.04% – – 4.04%
December 31, 2016
Peso
Financial Assets
Due from BSP 2.78% – – 2.78% – –
Due from banks 0.05% – – 0.05% – –
Investment securities* 1.95% 2.02% 5.04% 1.95% 2.02% 5.04%
Deposit liabilities other than LTNCD 1.40% 1.03% 1.88% 1.40% 1.03% 1.88%
LTNCD – – 5.62% – – 5.62%
Bills payable and SSURA – – 8.00% – – 8.00%
Subordinated note – – 5.46% – – 5.46%
USD
Financial Assets
Due from banks 0.12% – – 0.12% – –
Internank loans receivable and SPURA 3.00% – – – – –
Investment securities* 4.58% – 3.69% 4.58% – 3.69%
Deposit liabilities 1.69% 2.26% 1.96% 1.69% 2.26% 1.96%
Bills payable 2.91% 1.58% 1.75% 2.91% 1.58% 1.75%
Notes payable – – 4.04% – – 4.04%
* Consists of Financial assets at FVTPL and Investment securities at amortized cost
Market Risk in the Trading Book

The Parent Company needs to measure VaR in order to have an idea on how the market value of an
asset or of a portfolio of assets is likely to decrease over a certain time period as market factors
randomly change.
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VaR computation is a two-step process which involves calculation of the changes in the relevant risk
factors then computing for the corresponding impact on the exposure’s value. A risk factor is defined as
a variable that causes a change in the value of a financial instruments or a portfolio of financial
instruments.
VaR Methodology
The Parent Company uses two different approaches - Variance-Covariance and Historical Model.
Variance-Covariance approach is based on the assumption that the market factors have a multivariate
Normal distribution. Using this assumption, portfolio profits and losses follow a conditional normal
distribution, i.e., the standardized return – the return divided by the forecasted deviation - follow the
characteristic of the Normal curve whilst the returns themselves do not necessarily follow a Normal
distribution. Due to this assumption, it is possible to have an explicit formula for the quantile, since a
relationship exists between standard deviation and confidence level, which will be used for the VaR
computation.
Historical model assumes that asset returns in the future will have the same distribution that they had in
the past. It estimates VaR by reliving history, which involves using historical changes in market factors
to construct a distribution of potential profits and losses, and then reading off the loss that is exceeded at
a specified confidence level and period. The Parent Company employs Historical model in two forms:
one is a full revaluation while the other is a Taylor expansion composed of sensitivities (“Greeks”)
characterizing market behavior.
The Group uses the Historical model in calculating the VaR of most fixed income securities (except
government securities), foreign exchange outrights, forwards and swaps, and other derivative
instruments. For equities, the Variance-Covariance approach is used.
VaR Parameters
The Group uses a 99.0% confidence level which translates to 2.326 standard deviations. To give a
better picture, a 99.0% VaR can be taken as the 10th lowest of 1,000 profit and loss observations.
Since VaR is computed based on the volatility of market factors irrespective of market liquidity, the
Parent Company has assigned liquidity factors to account for the market’s ability to absorb the
Bank’s positions if it were to unload it the next day. The liquidity-adjusted 1-day VaR replaces the
use of various defeasance assumption, meant to represent the length of time it takes to fully close
positions on a specific product/portfolio. While the Parent Company uses a fixed 1 day defeasance
assumption across all products, liquidity factors is subject to a periodic review.
The VaR figures are backtested against actual and hypothetical profit and loss to validate the
robustness of the VaR model. Likewise, to complement the VaR measure, the Parent Company
performs stress tests wherein the trading portfolios are valued under extreme market scenarios not
covered by the confidence interval of the VaR model.
Since VaR is an integral part of the Parent Company’s market risk management, VaR limits are set
annually for all financial trading activities based on its risk appetite level. Exposures are then
monitored daily against the established VaR limits.
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The following table provides the VaR summary of the Parent Company for the year ended
December 31, 2017 and 2016 (amounts in millions):
Interest
FX and Fixed Rate Swap Other
FX Swaps Income Agreements* Derivatives
31-Dec-17
2017-Average Daily P
=7.231 P
=52.554 P
=26.638 P
=10.745
2017-Highest 38.818 311.940 39.624 31.677
2017-Lowest 1.679 3.061 15.612 6.306
As of Dec. 31, 2017 5.306 116.181 36.300 8.521
31-Dec-16
2016-Average Daily P
=16.111 P
=68.150 P
=15.034 P
=15.111
2016-Highest 51.857 254.392 29.395 35.631
2016-Lowest 1.418 6.213 3.070 4.716
As of Dec. 31, 2016 3.695 17.913 22.104 14.265
*Includes interest rate swap transactions of same currency, e.g., PHP fix/float, and cross currency swaps,
e.g., USD/PHP fix/fix
The Parent Company’s trading in fixed income securities together with the interest rate swaps are
exposed to movements in interest rates. Foreign exchange swaps and other derivatives such as
options and gold forwards are exposed to multiple risk factors including foreign exchange rates,
interest rates, and sometimes even the volatility of these factors, e.g., for options, the volatility of the
FX rates are also being traded.
The high and low of the total portfolio may not equal to the sum of the individual components as the
high and low of individual portfolios may have occurred on different trading days.
Equity price risk

Equity price risk is the risk that the fair values of equities will decrease as a result of changes in the
levels of equity indices and the value of individual stocks.
The following tables set forth the impact of changes in the Philippine Stock Exchange Index (PSEi)
on the Group’s and the Parent Company’s unrealized gain (loss) (in absolute amounts):
Financial Assets at FVTPL

Consolidated
2017 2016
Changes in PSEi 13.92% -13.92% 8.50% -8.50%
Change on trading income of equity
portfolio under:
Financial intermediaries P=32 (P
= 32) P
=20 (P
=20)
Holding firms 883 (883) 303 (303)
Industrial companies 209 (209) 129 (129)
Property 11 (11) 7 (7)
Services – – – –
P
=1,135 (P
= 1,135) P
=459 (P
=459)
As a percentage of the Group’s net
unrealized gain (loss) for the year 0.00% 0.00% 0.00% 0.00%
There is no impact in the change of the PSEi to the Parent Company.
*SGVFS027055*
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Financial Assets at FVTOCI

Consolidated
2017 2016
Changes in PSEi 13.92% -13.92% 8.50% -8.50%
Change in net unrealized loss of SBEI’s
PSE shares P
=4,364,687 (P
= 4,364,687) P
=2,555,055 (P
=2,555,055)
As a percentage of SBEI’s net unrealized gain
(loss) for the year 1,456.39% (1,456.39%) (55.69%) 55.69%
The Group, except for SBEI, has no equity securities classified under Financial assets at FVTOCI as
of December 31, 2017 and 2016, respectively, which are affected by changes in the PSEi as these
securities are mainly golf and club shares.
Market Risk in the Non-Trading Book

The accrual book pertains to the assets and liabilities that make up the Parent Company’s balance
sheet. Such accrual positions are sensitive to changes in interest rates. The Parent Company
monitors the exposure of non-trading assets and liabilities to fluctuations in interest rates by
measuring the impact of interest rate movements on its interest income.
The following tables set forth, for the period indicated, the sensitivity of the Parent Company’s net
interest income and equity to reasonably possible changes in interest rates with all other variables
held constant:
2017
Currency PHP USD
Changes in interest rates (in basis points) +100 -100 +100 -100
Change in annualized net interest income* P
=99 (P
= 99) (P
= 1,237) P
=1,237
2016
Currency PHP USD
Changes in interest rates (in basis points) +100 -100 +100 -100
Change in annualized net interest income* (P
=51) P
=51 (P
=1,840) P
=1,840
*Amounts in millions
Earnings-at-Risk (EAR) or the sensitivity of the statement of income is the effect of the assumed
changes in interest rates on the net interest income for one year, based on the floating rate non-trading
financial assets and financial liabilities held at each statements of financial position date. This
approach focuses on the impact in profit or loss of holding on to the gaps over a 1-year time frame.
To control the interest rate repricing risk in the banking books, the Parent Company sets a limit on the
EAR measure.
The Parent Company recognizes, however, that this metric assumes a “business-as-usual” scenario
and, therefore, do not show potential losses under a “stress” scenario. To address this limitation, the
Parent Company performs regular stress testing to test its ability to cope with adverse changes in
interest rates under different stress scenarios. This process involves applying one-time interest rate
shocks of different magnitudes to the current repricing gap positions in the balance sheet.
Currency risk
Currency risk is the risk that the value of a financial instrument will fluctuate due to changes in
foreign exchange rates.
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Foreign currency-denominated deposits are generally used to fund the Parent Company’s foreign
currency-denominated loan and investment portfolio in the FCDU. Banks are required by the BSP to
match the foreign currency-denominated liabilities with the foreign currency-denominated assets held
under the FCDU books. In addition, the BSP requires a 30.0% liquidity reserve on all foreign
currency liabilities held under the FCDU. As of December 31, 2017 and 2016, the Parent Company
is in compliance with the said regulation.
The Group’s policy is to maintain foreign currency exposure within acceptable limits and within
existing regulatory guidelines.
The following tables summarize the Group’s and the Parent Company’s exposure to currency risk as
of December 31, 2017 and 2016. Included in the tables are the Group’s and the Parent Company’s
assets and liabilities at carrying amounts, categorized by currency (amounts in Philippine Peso
equivalent).
Consolidated
2017 2016
USD Others* Total USD Others* Total
Financial Assets
Cash and cash equivalents =
P– P
= 141,732 P
= 141,732 =
P– P
=67,103 P
=67,103
Financial assets at FVTPL 144,939 – 144,939 140,224 – 140,224
Investment securities at amortized cost 10,394,834 – 10,394,834 35,913,669 – 35,913,669
Loans and receivables 3,483,934 40,760 3,524,694 4,083,992 10,282 4,094,274
Other assets 207,709 6,141 213,850 4,987 534 5,521
Total financial assets 16,936,493 1,219,324 18,155,817 45,529,475 1,176,155 46,705,630
Deposit liabilities – 1,210,278 1,210,278 – 1,103,043 1,103,043
Bills payable and SSURA 74,137,728 570 74,138,298 65,730,213 47 65,730,260
Acceptances payable 583,049 40,631 623,680 734,890 10,282 745,172
Margin deposits and cash letters of credit 597,567 – 597,567 377,659 – 377,659
expenses – 51,526 51,526 – 56,908 56,908
Other liabilities 43,002 177 43,179 14,625 129 14,754
Total financial liabilities 75,361,346 1,303,182 76,664,528 66,857,387 1,170,409 68,027,796
Currency Swaps and Forwards 52,728,803 – 52,728,803 15,239,717 (63,390) 15,176,327
Net Exposure (P
= 5,696,050) (P = 5,779,908) (P
= 83,858) (P =6,088,195) (P
=57,644) (P
=6,145,839)
Parent Company
2017 2016
USD Others* Total USD Others* Total
Financial Assets
Cash and cash equivalents =
P– P
= 141,732 P
= 141,732 =
P– P
=67,103 P
=67,103
Financial assets at FVTPL 144,939 – 144,939 140,224 – 140,224
Investment securities at amortized cost 10,394,834 – 10,394,834 35,913,669 – 35,913,669
Loans and receivables 3,483,934 40,760 3,524,694 4,083,992 10,282 4,094,274
Other assets 207,709 6,141 213,850 4,987 534 5,521
Total financial assets 16,936,493 1,219,324 18,155,817 45,529,475 1,176,155 46,705,630
Deposit liabilities `– 1,210,278 1,210,278 – 1,103,043 1,103,043
Bills payable and SSURA 74,137,728 570 74,138,298 65,730,213 47 65,730,260
Acceptances payable 583,049 40,631 623,680 734,890 10,282 745,172
of credit 597,567 – 597,567 377,659 – 377,659
expenses – 51,526 51,526 – 56,908 56,908
Total financial liabilities 75,361,346 1,303,182 76,664,528 66,857,277 1,170,409 68,027,686
Currency Swaps and Forwards 52,728,803 – 52,728,803 15,239,717 (63,390) 15,176,327
Net Exposure (P
= 5,696,050) (P = 5,779,908) (P
= 83,858) (P =6,088,085) (P
=57,644) (P=6,145,729)
* Consists of Euro, British pound, Australian dollar, Canadian dollar, Hong Kong dollar, Singapore dollar, New Zealand dollar,
Swiss franc, Japanese yen, Danish kroner, Thai baht, Chinese yuan, and South Korean won
*SGVFS027055*
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Information relating to the Parent Company’s currency derivatives are disclosed in Note 6. The
Parent Company has outstanding cross-currency swaps with notional amount of USD84.1 million and
USD50.6 million as of December 31, 2017 and 2016, respectively, and foreign currency forward
transactions with notional amount of USD1.6 billion (bought) and USD558.5 million (sold) as of
December 31, 2017, and USD307.0 million (bought) and USD91.1 million (sold) as of
December 31, 2016.
The impact of the range of reasonably possible changes in the US Dollar-Philippine Peso exchange
rate (except those in the FCDU books) on the Parent Company’s non-consolidated pre-tax income in
2017 and 2016 has been included in the VaR summary per product line.
Operational Risk
Operational risk is the probability of loss arising from fraud, unauthorized activities, errors,
omissions, system failures or from external events. This is the broadest risk type encompassing
product development and delivery, operational processing, systems development, computing systems,
complexity of products and services, and the internal control environment.
Operational Risk Management is considered a critical element in the Bank’s commitment to sound
management and corporate governance. Under the Bank’s operational risk management framework
and operational risk manual, a risk-based approach is used in mapping operational risks along
critical/key business processes, addressing any deficiencies/weaknesses through the proactive process
of identifying, assessing and limiting impact of risk in every business/operational area.
Group policies on internal control, information security, and other operational risk aspects have been
established. Key Risk Indicators and Risk Assessment Guidelines have been implemented and
disseminated to different sectors of the Group to provide alerts for operational risk vulnerabilities.
The Bank has instituted a Risk and Control Assessment process, as well as an Issue Escalation
procedure to ensure that issues or incidents where lapses in controls occur are captured, evaluated and
elevated for correction. There is a continuous effort to expand the Operational Loss Database
covering loss event categories as defined by Basel II. In addition, the Bank has an established a
Business Continuity Plan to ensure continued bank operations in the face of potential disruptions to
operations as well as Fraud Management Framework for the prevention, detection, investigation and
recovery strategies to manage fraud, both internal and external.
6. Fair Value Measurement and Derivative Transactions
The following table provides the fair value hierarchy of the Group’s and the Parent Company’s assets
and liabilities measured at fair value and those for which fair values should be disclosed:
Consolidated
Fair Value
Quoted Prices Significant Significant
in active observable unobservable
Carrying market inputs inputs
Value Total (Level 1) (Level 2) (Level 3)
December 31, 2017
Assets Measured at Fair Value
HFT investments:
= 2,965,152 P
= 2,965,152 P
= 2,965,152 P
=– P
=–
Private bonds 146,362 146,362 146,362 – –
Equity securities 8 8 8 – –
Total HFT investments 3,111,522 3,111,522 3,111,522 – –
(Forward)
*SGVFS027055*
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Consolidated
Fair Value
Derivative assets:
Interest rate swaps P
= 666,382 P
= 666,382 P
=– P
= 666,382 P
=–
Currency forwards 607,271 607,271 – 607,271 –
Cross-currency swaps 191,571 191,571 – 191,571 –
Interest rate futures 262 262 – 262 –
Total derivative assets 1,465,486 1,465,486 – 1,465,486 –
Others 15,487 15,487 15,487 – –
Total financial assets at FVTPL 4,592,495 4,592,495 3,127,009 1,465,486 –
Financial assets at FVTOCI 200,271 200,271 – 200,271
P
= 4,792,766 P
= 4,792,766 P
= 3,127,009 P
= 1,665,757 P
=–
Assets for which Fair Values are Disclosed
Financial Assets
Treasury bonds P
= 175,794,191 P
= 173,501,074 P
= 173,501,074 P
=– P
=–
Private bonds 35,940,157 35,933,280 35,933,280 – –
Treasury notes and bills 17,858,967 16,892,112 16,892,112 – –
Total investment securities at amortized cost 229,593,315 226,326,466 226,326,466 – –
Corporate lending 304,842,003 308,316,235 – – 308,316,235
Consumer lending 18,580,772 18,571,239 – – 18,571,239
Small business lending 4,691,339 4,707,919 – – 4,707,919
Residential mortgages 35,426,264 35,791,068 – – 35,791,068
Total receivable from customers 363,540,378 367,386,461 – – 367,386,461
Other receivables 6,649,380 6,649,380 – – 6,649,380
Other assets 321,154 288,959 – – 288,959
Total financial assets at amortized cost 600,104,227 600,651,266 226,326,466 – 374,324,800
Non-financial Assets
Investment properties 791,306 1,223,667 – – 1,223,667
P
= 600,895,533 P
= 601,874,933 P
= 226,326,466 P
=– P
= 375,548,467
Liabilities Measured at Fair Value
Financial liabilities at FVTPL:
Derivative liabilities:
Currency forwards P
= 1,416,071 P
= 1,416,071 P
=– 1,416,071 –
Interest rate swaps 593,305 593,305 – 593,305 P
=–
Warrants 3,151 3,151 – 3,151 –
Total financial liabilities at FVTPL P
= 2,013,182 P
= 2,013,182 P
=– P
= 2,013,182 P
=–
Liabilities for which Fair Values are Disclosed
Deposit liabilities excluding LTNCD P
= 394,577,401 P
= 394,355,302 P
=– P
=– P
= 394,355,302
LTNCD 18,526,475 18,698,646 – – 18,698,646
Subordinated note 9,950,814 9,991,168 – – 9,991,168
Notes payable 14,948,402 15,522,407 15,522,407 – –
Bills payable and SSURA 193,962,051 193,555,479 – – 193,555,479
P
= 631,965,143 P
= 632,123,002 P
= 15,522,407 P
=– P
= 616,600,595
December 31, 2016
HFT investments:
=1,818,898 P
=1,818,898 P
=1,818,898 =
P– =
P–
Private bonds 21,422 21,422 21,422 – –
Equity securities 310 310 310 – –
Derivative assets:
Interest rate swaps 549,019 549,019 – 549,019 –
Others 15,116 15,116 15,116 – –
Financial assets at FVTOCI 178,246 178,246 – 178,246 –
P
=3,566,930 P
=3,566,930 P
=1,855,746 P
=1,711,184 =
P–
(Forward)
*SGVFS027055*
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Consolidated
Fair Value
Financial Assets
Treasury bonds P
=217,751,803 P
=209,082,172 P
=209,082,172 =
P– =
P–
Private bonds 27,690,367 28,198,132 28,198,132 – –
Treasury notes and bills 511,478 532,829 532,829 – –
Other receivables 6,603,831 6,625,923 6,625,923
Other assets 298,258 273,520 – – 273,520
P
=536,598,758 P
=531,675,900 P
=237,813,133 P
=– =
P293,862,767
=457,784 P
=457,784 =
P– P
=457,784 =
P–
Warrants 3,137 3,137 – 3,137 –
Total financial liabilities at FVTPL 656,265 656,265 – 656,265 –
Derivative liabilities designated as hedges 3,826 3,826 – 3,826 –
P
=660,091 P
=660,091 =
P– P
=660,091 =
P–
=336,625,184 P
=336,953,978 =
P– P
=– =
P336,953,978
LTNCD 9,972,738 10,198,675 – – 10,198,675
Notes payable 14,869,397 15,528,600 15,528,600 – –
P
=582,289,715 P
=583,604,822 P
=15,528,600 P
=– =
P568,076,222
Parent Company
Fair Value
December 31, 2017
HFT investments:
= 2,965,152 P
= 2,965,152 P
= 2,965,152 P
=– P
=–
Private bonds 49,266 49,266 49,266 – –
Total HFT investments 3,014,418 3,014,418 3,014,418 –
Derivative assets:
Others 15,465 15,465 15,465 –
P
= 4,646,739 P
= 4,646,739 P
= 3,029,883 P
= 1,616,856 P
=–
(Forward)
*SGVFS027055*
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Parent Company
Fair Value
Financial Assets
Treasury bonds P
= 175,794,191 P
= 173,501,074 P
= 173,501,074 P
=– P
=–
Private bonds 35,940,157 35,933,280 35,933,280 – –
Treasury notes and bills 17,858,967 16,892,112 16,892,112 – –
Other assets 317,070 285,284 – – 285,284
598,692,418 599,672,879 226,326,466 – 373,346,413
Cross-currency forwards 1,416,071 1,416,071 – 1,416,071 –
Warrants 3,151 3,151 – 3,151 –
Interest rate futures 655 655 – 655
Total financial liabilities at FVTPL 2,013,182 2,013,182 – 2,013,182 –
Financial liabilities at amortized cost:
Deposit liabilities excluding LTNCD 396,503,309 396,281,210 – – 396,281,210
LTNCD 18,526,475 18,698,646 – – 18,698,646
Notes payable 14,948,402 15,522,407 15,522,407 – –
P
= 633,741,051 P
= 633,898,910 P
= 15,522,407 P
=– P
= 618,376,503
December 31, 2016
HFT investments:
=1,818,898 P
=1,818,898 P
=1,818,898 =
P– =
P–
Private bonds 21,422 21,422 21,422 – –
Derivative assets:
Others 15,093 15,093 15,093 – –
P
=3,511,171 P
=3,511,171 P
=1,855,413 P
=1,655,758 =
P–
Financial Assets
Treasury bonds P
=217,751,803 P
=209,082,172 P
=209,082,172 =
P– =
P–
Private bonds 27,690,367 28,198,132 28,198,132 – –
Treasury notes and bills 511,478 532,829 532,829 – –
(Forward)
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Parent Company
Fair Value
Corporate lending P
=243,415,334 P
=246,047,700 =
P– P
=– =
P246,047,700
Other assets 280,284 257,036 – – 257,036
P
=535,741,487 P
=530,805,203 P
=237,813,133 P
=– =
P292,992,070
=457,784 P
=457,784 =
P– P
=457,784 =
P–
Cross-currency forwards 195,344 195,344 – 195,344 –
Warrants 3,137 3,137 – 3,137 –
Total financial liabilities at FVTPL 656,265 656,265 – 656,265 –
Derivative liabilities designated as hedges 3,826 3,826 – 3,826 –
P
=660,091 P
=660,091 =
P– P
=660,091 =
P–
Financial liabilities at amortized cost:
=338,886,188 P
=339,178,602 =
P– P
=– =
P339,178,602
LTNCD 9,972,738 10,198,675 – 10,198,675
Subordinated note 9,944,724 9,897,692 – 9,897,692
Notes payable 14,869,397 15,528,600 15,528,600 – –
P
=584,460,719 P
=585,739,446 P
=15,528,600 P
=– =
P570,210,846
During the years ended December 31, 2017 and 2016, there were no transfers between Level 1 and
Level 2 fair value measurements, and no transfers into and out of Level 3 fair value measurements.
The methods and assumptions used by the Group in estimating the fair value of its financial
instruments are:
COCI, due from BSP and other banks and interbank loans receivable and SPURA with the BSP
The carrying amounts approximate fair values considering that these accounts consist mostly of
overnight deposits and floating rate placements.
Debt securities
Fair values are generally based upon quoted market prices, if available. If the market prices are not
readily available, fair values are estimated using either values obtained from independent parties
offering pricing services or adjusted quoted market prices of comparable investments or using the
discounted cash flow methodology.
Equity securities
Fair values of quoted equity securities are based on quoted market prices. The unquoted equity
securities are carried at cost net of impairment since there is insufficient information available to
determine its fair values.
Receivable from customers, sales contracts receivable and unquoted debt instruments classified as
loans (included under ‘Other receivables’)
Fair values of loans and receivables are estimated using the discounted cash flow methodology, using
the Group’s current incremental lending rates for similar types of loans and receivables.
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Other receivables - Accounts receivable and accrued interest receivable

Carrying amounts approximate fair values given their short-term nature.
Investment properties
Fair value of investment properties are determined by independent or in-house appraisers using the
market data approach. Valuations were derived on the basis of recent sales of similar properties in
the same area as the investment properties and taking into account the economic conditions prevailing
at the time the valuations were made and comparability of similar properties sold with the property
being valued. Significant unobservable inputs in determining fair values include the following:
Location Location of comparative properties whether on a main road, or secondary

road. Road width could also be a consideration if data is available. As a
rule, properties located along a main road are superior to properties located
along a secondary road.
Size Size of lot in terms of area. Evaluate if the lot size of property or
comparable conforms to the average cut of the lots in the area and estimate
the impact of the lot size differences on land value.
Time element An adjustment for market conditions is made if general property values have
appreciated or depreciated since the transaction dates due to inflation or
deflation or a change in investor’s perceptions of the market over time, in
which case, the current data is superior to historic data.
Discount Generally, asking prices in advertisements posted for sale are negotiable.
Discount is the amount the seller or developer is willing to deduct from the
posted selling price if the transaction will be in cash or equivalent.
Other financial assets

The carrying amounts approximate fair values due to their short-term nature.
Derivative instruments
Fair values of quoted warrants are based on quoted market prices. Other derivative products are
valued using valuation techniques using market observable inputs including foreign exchange rates
and interest rate curves prevailing at the statements of financial position date. For interest rate swaps,
cross-currency swaps and foreign exchange contracts, discounted cash flow model is applied. This
valuation model discounts each cash flow of the derivatives at a rate that is dependent on the tenor of
the cash flow.
Deposit liabilities (demand and savings deposits excluding long-term savings deposits)
The carrying amounts approximate fair values considering that these are due and demandable.
Long-term negotiable certificates of deposit (LTNCD) and subordinated note

Fair values of LTNCD and subordinated note are estimated using adjusted quoted market prices of
comparable investments. The adjustments on market quoted prices are unobservable inputs.
Other financial liabilities

For accrued interest and other expenses and other financial liabilities, the carrying amounts
approximate fair values due to their short-term nature.
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Derivative Financial Instruments

The following tables set out the information about the Group’s and the Parent Company’s derivative
financial instruments and the related fair values:
2017 2016
Derivative Derivative Derivative Derivative
Notional Asset Liability Notional Asset Liability
Amounts (Note 9) (Note 18) Amounts (Note 9) (Note 18)
Forward exchange bought USD1,620,370 P
= 300,790 P
= 1,416,071 USD306,977 P
=835,846 P
=35,359
Forward exchange sold USD558,463 306,481 – USD91,132 54,963 159,985
= 186,609 666,382 593,305 P=208,309,153 549,019 457,784
Warrants USD250,258 – 3,151 USD250,258 – 3,137
Interest rate futures USD60,000 262 655 =
P– – –
Cross-currency swaps USD84,110 191,571 – USD50,601 93,110 –
P
= 1,465,486 P
= 2,013,182 P
=1,532,938 P
=656,265
The movements in the Group’s and the Parent Company’s derivative financial instruments follow:
2017 2016
Derivative Assets
Balance at beginning of year P
=1,532,938 =1,208,020
P
Fair value changes during the year (161,614) 548,345
Settled transactions 94,162 (223,427)
Balance at end of year P
=1,465,486 =1,532,938
P
Derivative Liabilities
=656,265 =734,542
P
Fair value changes during the year 1,335,877 287,048
Settled transactions 21,040 (365,325)
=2,013,182 =656,265
P
Fair value changes of derivatives other than forward contracts amounting to P =8.1 million and
=
P61.2 million gain in 2017 and 2016, respectively, are recognized as ‘Trading and securities gain-net’
in the statements of income (see Note 8), while fair value changes on forward contracts amounting to
=
P1.5 billion loss in 2017 and P=200.1 million gain in 2016 are recognized as ‘Foreign exchange gain
(loss) - net’ in the statements of income.
On December 20, 2013, the BSP approved the Parent Company’s application for additional Type 2
derivatives authority on the following derivative products:
a. Non-Deliverable/Net settled/Cash Settled European and American Options on FX, Bonds and
Gold
b. Deliverable American Options on FX, Bonds and Gold
c. Deliverable Exotic Options on FX, Bonds and Gold (Barriers and Digitals)
d. Gold Forwards
e. Bond Forwards
f. Non-Deliverable Swaps
g. Asset Swaps
On February 7, 2012, the BSP approved the Parent Company’s application for additional Type 3
derivatives authority on the following instruments:
a. European and American foreign currency options (plain vanilla and exotic)
b. Bond and gold forwards
c. Credit default swaps
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On August 13, 2008, the BSP approved the Parent Company’s application for a Type 2 Limited
Dealer Authority and Type 3 Limited User Authority under BSP Circular No. 594 dated
January 8, 2008 to engage in the following types of derivatives:
Type 2 Limited Dealer Authority (Stand-alone only):

a. Foreign exchange forwards (including non-deliverable forwards)
b. Forward rate agreements
c. Options
d. Interest rate swaps
e. Currency swaps/cross currency swaps/foreign exchange swaps
Type 3 End-User Authority

a. Credit-linked notes
b. Range accrual notes/swaps
As of December 31, 2017 and 2016, the Parent Company has positions in the following types of
derivatives:
Forwards
Forward contracts are contractual agreements to buy or sell a specified instrument at a specific price
and date in the future. Forwards are customized contracts transacted in the over-the-counter market.
Swaps
Swaps are contractual agreements between two parties to exchange streams of payments over time
based on specified notional amounts, in relation to movements in a specified underlying index such as
interest rate, foreign currency rate or equity index.
Interest rate swaps relate to contracts taken out by the Parent Company with other financial
institutions in which the Parent Company either receives or pays a floating rate in return for paying or
receiving, respectively, a fixed rate of interest. The payment flows are usually netted against each
other, with the difference being paid by one party to the other.
In a currency swap, the Parent Company pays a specified amount in one currency and receives a
specified amount in another currency. Currency swaps are mostly gross-settled.
Interest rate futures

Futures contract is a contractual agreement made on a futures exchange to buy or sell particular assets
at a predetermined price in the future. Futures contracts standardize the quality and quantity of the
underlying asset.
Derivative financial instruments held or issued for trading purposes

The Parent Company’s derivative trading activities relate to deals with customers which are normally
laid off with counterparties. The Parent Company may also take positions with the expectation of
generating profit from favorable movements in prices and rates on indices. Also included under this
heading are any derivatives which do not meet hedge accounting requirements.
Derivative financial instruments held or issued for hedging purposes

As part of its asset and liability management, the Parent Company used derivatives for hedging
purposes in order to reduce its exposure to market risks that is achieved by hedging portfolios of fixed
rate financial instruments.
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The accounting treatment explained in Note 2 to the financial statements, Hedge Accounting, varies
according to the nature of the item hedged and compliance with the hedge criteria. Hedges entered
into by the Parent Company which provide economic hedges but do not meet the hedge accounting
criteria are treated as Derivatives Held or Issued for Trading Purposes.
Fair value hedges

Fair value hedges are used by the Parent Company to protect its portfolio against changes in fair
value of financial assets due to movements in interest rates. The financial instruments hedged for
interest rate risk represents receivables from customers. The Parent Company uses interest rate swaps
to hedge against identified interest rate risks (see Note 19).
7. Interest Income on Financial Investments
This account consists of interest income on:

2017 2016 2015 2017 2016 2015
Financial assets at FVTPL (Note 9):
Derivatives P
= 516,029 P
=748,980 P
=929,123 P
= 516,029 P
=748,980 P
=929,123
Held-for-trading 86,592 82,367 285,108 84,371 82,367 285,108
602,621 831,347 1,214,231 600,400 831,347 1,214,231
Investment securities at amortized
cost (Note 11) 10,399,086 8,264,024 6,189,061 10,399,086 8,264,024 6,184,680
P
= 11,001,707 P
=9,095,371 P
=7,403,292 P
= 10,999,486 P
=9,095,371 P
=7,398,911
Peso-denominated HFT investments earn annual interest rates ranging from 2.13% to 14.38%, from
2.13% to 14.38%, and from 1.63% to 18.25% in 2017, 2016 and 2015, respectively, while foreign
currency-denominated HFT investments earn annual interest rates ranging from 2.75% to 11.63%,
from 3.70% to 9.88%, and from 2.00% to 10.63% in 2017, 2016 and 2015, respectively.
Peso-denominated investment securities at amortized cost earn annual interest rates ranging from
3.50% to 8.13%, from 4.00% to 8.00%, and from 1.63% to 14.38% in 2017, 2016 and 2015,
respectively, while USD-denominated investment securities at amortized cost earn annual interest
rates ranging from 3.70% to 10.63%, from 3.70% to 10.63%, and from 3.95% to 10.63% in 2017,
2016 and 2015, respectively.
8. Trading and Securities Gain
Net gains from trading/disposal of investment securities follow:

2017 2016 2015 2017 2016 2015
Investment securities at amortized cost
(Note 11) P
= 2,349,270 P
=1,609,502 P
=2,067,016 P
= 2,349,270 P
=1,609,502 P
=2,067,016

reclassified to financial assets at
FVTPL (Note 11) =
P− =
P− P
=625,926 =
P− =
P− P
=625,926
Financial instruments at FVTPL:

Held-for-trading investments (Note 9) P
= 18,879 P
=81,515 P
=348,286 P
= 19,945 P
=81,691 P
=354,575
Derivatives (Note 6) 8,086 61,179 (173,607) 8,087 61,179 (173,607)
P
= 26,965 P
=142,694 P
=174,679 P
= 28,032 P
=142,870 P
=180,968
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9. Financial Assets at Fair Value Through Profit or Loss
This account consists of:

2017 2016 2017 2016
Held-for-trading:
=2,965,152 P
=1,818,898 P
=2,965,152 P
=1,818,898
Private bonds 146,362 21,422 49,266 21,422
Equity securities 8 310 – –
3,111,522 1,840,630 3,014,418 1,840,320
Derivative assets (Note 6):
Interest rate swaps 666,382 549,019 666,382 549,019
Currency forwards 607,271 890,809 607,271 890,809
Cross-currency swaps 191,571 93,110 191,571 93,110
Interest rate futures 262 – 262 –
1,465,486 1,532,938 1,465,486 1,532,938
Others 15,487 15,116 15,465 15,093
P
=4,592,495 P
=3,388,684 P
=4,495,369 P
=3,388,351
As of December 31, 2017 and 2016, equity instruments under ‘Others’ pertain to the Parent
Company’s and SBCIC’s equity investments with aggregate carrying amount of P =15.5 million and
=
P15.1 million, respectively, which are not designated as at FVTOCI. These are financial assets not
held for trading purposes.
As discussed in Note 27, as of December 31, 2017 and 2016, government securities included under
‘Financial assets at FVTPL’ with a total face value of nil and P
=600.0 million, respectively, were
deposited with the BSP in compliance with the requirements of the General Banking Law relative to
the Parent Company’s trust functions.
As of December 31, 2017 and 2016, ‘Financial assets at FVTPL’ include net unrealized gain of
P
=1.5 billion for the Group and the Parent Company.
Fair value gains or losses on financial assets at FVTPL (other than currency forwards) are included in
‘Trading and securities gain - net’ (see Note 8) in the statements of income. Fair value gains or losses
on currency forwards are included in ‘Foreign exchange gain - net’ in the statements of income (see
Note 6).
10. Financial Assets at Fair Value through Other Comprehensive Income

2017 2016 2017 2016
PSE shares =42,791
P =42,506
P =–
P =–
P
Golf shares 157,480 135,740 151,370 122,820
=200,271
P =178,246
P =151,370
P =122,820
P
PSE shares were obtained by SBEI in 2001 as a result of the demutualization of its membership
shares in the stock exchange. These investments were for long-term strategic purpose. SBEI
designated these equity securities as financial assets at FVTOCI as management believes that this
provides a more meaningful presentation for medium or long-term strategic investments, rather than
*SGVFS027055*
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reflecting changes in fair value immediately in the statements of income. The Group also adopted the
same classification for its investments in golf shares.
SBEI recognized dividend income, included in ‘Miscellaneous income’ in the statements of income
amounting to =
P1.2 million from its investments in PSE shares in 2017 and 2016 (see Note 31).
The movements in ‘Net unrealized gain on financial assets at FVTOCI’ follow:

2017 2016 2017 2016
Balance at beginning of year =90,446
P =76,497
P =85,266
P =71,317
P
Unrealized gains for the year 21,945 13,949 15,698 13,949
Balance at end of year =112,391
P =90,446
P =100,964
P =85,266
P
11. Investment Securities at Amortized Cost
2017 2016
Treasury bonds (Note 20) =175,794,191
P =217,751,803
P
Private bonds (Note 20) 35,940,157 27,690,367
Treasury notes and bills (Notes 20 and 27) 17,858,967 511,478
=229,593,315
P =245,953,648
P
During the fourth quarter of 2017, the Parent Company disposed certain USD-denominated
government securities classified as HTC securities with a carrying amount of USD1.0 billion
(P
=52.2 billion). The disposals resulted in a gain of USD24.2 million (P
=1.2 billion) recorded in the
statements of income under ‘Gain on disposal of investment securities at amortized cost’.
Management obtained the approval of its ROC and the BOD for the disposal of these securities,
which proceeds would be used to fund the growth in its lending business.
As part of the approval, management expressed the need to change its business model for managing
its HTC securities considering the reassessment of its funding strategy vis-à-vis the business
requirements and funding sources. The change in business model will be considered in relation to the
adoption of the final version of PFRS 9.
Accordingly, in December 2017, the ROC and the BOD of the Parent Company approved the
proposed business models in managing its financial assets in accordance with the final version of
PFRS 9. The new business models included categories of financial assets as to HTC, FVTPL and
FVOCI. As a result of the change in business model and in relation to its adoption of revised PFRS 9,
certain HTC securities are expected to be reclassified to the ‘Financial assets at FVOCI’ category at
the beginning of the first quarter of 2018.
In November 2017, the Parent Company participated in the cash tender offer of a private entity of its
USD-denominated 2019 bonds classified as HTC with a carrying amount of USD10.0 million
(P
=501.5 million). The issuer subsequently redeemed the bonds not tendered in the offer in December
2017 in accordance with the terms and conditions of the bonds. The participation in the cash tender
offer resulted in a gain of USD0.7 million (P
=37.6 million) recorded in the statements of income under
‘Gain on disposal of investment securities at amortized cost’.
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In April 2017, the Parent Company participated in the cash tender offer by another private entity of its
USD-denominated 2021 bonds classified as HTC with a carrying amount of USD57.8 million
(P
=2.9 billion). The disposal resulted in a gain of USD5.5 million (P
=275.3 million) recorded in the
statements of income under ‘Gain on disposal of investment securities at amortized cost’.
The Parent Company concluded that the participation in tender offers in April and November 2017
resulting in disposals of HTC securities was not inconsistent with the Parent Company’s HTC
business model as supported by the following:
∂ The main motivation of the Parent Company in participating was to protect itself from potential
adverse effects of reduced liquidity of the bonds following the tender offers. In addition, for the
securities tendered in November, the issuer also had a program to redeem all securities not
tendered. Hence, the Parent Company decided to participate in the tender offer that provided the
higher price.
∂ The securities submitted were purchased by the Parent Company based on their yield and credit
prior to the issuers’ decision to make a tender offer.
In January 2017, as part of the general cash management program and broader program to manage its
external liabilities, the Republic of the Philippines executed a cash tender offer. Under the cash
tender offer, the government offered selected USD-denominated securities for buyback. The Parent
Company submitted its holdings of eligible bonds that resulted in the derecognition of certain HTC
securities. USD-denominated investment securities at amortized cost with carrying amount of
USD455.6 million (P =22.7 billion) were tendered which resulted in a gain of USD16.1 million
(P
=803.7 million) recorded in the statements of income under ‘Gain on disposal of investment
securities at amortized cost’. The Parent Company concluded that the participation in the tender offer
was not inconsistent with the Parent Company’s HTC business model as supported by the following:
∂ The Parent Company participated in the tender offer to protect itself from the possible adverse
impact on the liquidity of the eligible securities. There is a high likelihood that the securities will
become illiquid after the offerings as it substantially reduces the outstanding issue size of the
eligible securities.
∂ The government has no program explicitly set that requires it to undertake a debt swap activity
regularly. There is no guarantee that it will announce such an undertaking at any point in time
until the government makes the announcement on the actual offer date.
∂ The securities submitted for the offerings were purchased by the Parent Company prior to the
announcement of the government of the securities eligible for the offerings.
BSP Circular No. 708 also provides that dercognition of financial assets attributable to changes in the
payment structure as initiated by the creditor like bond swap or exchange is not considered
inconsistent with an HTC business model.
In February 2016, the Parent Company participated in the bond swap offer by the Republic of the
Philippines. USD-denominated investment securities at amortized cost with a carrying amount of
USD686.3 million (P =32.6 billion) were swapped which resulted in a gain of USD30.0 million
(P
=1.4 billion). The Parent Company concluded that the participation in these government-initiated
offerings was not inconsistent with its HTC business model as explained above.
On March 10, 2016, the BSP adopted Basel III's Liquidity Coverage Ratio (LCR) requirements under
Circular No. 905. The new liquidity rule requires banks to have available high quality liquid assets
(HQLA) to meet anticipated net cash outflow for a 30-day period under stress conditions. The
standard, which initially covers universal and commercial banks, prescribes that, under a normal
*SGVFS027055*
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situation, the value of the liquidity ratio be no lower than 100% on a daily basis because the stock of
unencumbered HQLA is intended to serve as a defense against potential onset of liquidity stress. The
guidelines provide for an observation period from July 1, 2016 to December 31, 2017. During the
observation period, no minimum ratio has to be complied with. However, to encourage transitioning
internally to the new standard and to monitor level of compliance, banks are required to submit
quarterly reports to the BSP.
In response to the effect of this new regulatory requirement to the Group and the Parent Company’s
LCR, the Parent Company, with the approval of its Risk Oversight Committee, embarked on a
program to comply with the LCR requirements which includes, among others, the following:
i. To maximize the allowed cap for USD-denominated sovereign bonds that will qualify as HQLA
by freeing up USD-denominated HTC securities that are encumbered by short-term borrowings
through repurchase agreements, the Parent Company changed its intention on certain USD-
denominated HTC securities with face value of US$207.0 million (P
=10.4 billion) to be able to
comply with the LCR requirements.
ii. Invest in Peso-denominated qualifying HQLA Level 1 assets such as, but not limited to, fixed
income government securities and placement in the BSP’s Term Deposit Auction Facility.
Pursuant to the program to comply with the LCR requirements, the Parent Company disposed certain
USD-denominated securities under the HTC business model in October and November 2016 with
face value of $75.0 million and carrying amount of US$93.6 million (P =4.6 billion) resulting in a gain
amounting to = P184.0 million included under ‘Gain on disposal of investment securities at amortized
cost’ in the statements of income. The Parent Company concluded that the disposal is a permissible
sale under the Parent Company’s HTC business model since it was attributable to a significant
increase in regulatory liquidity requirements that caused the Parent Company to downsize by selling
securities under the amortized cost category and was attributable to an isolated event that was beyond
the Parent Company’s control, was infrequent and could not have been reasonably anticipated.
Accordingly, since the business model to hold and collect contractual cash flows of the remaining
USD-denominated HTC securities as of December 31, 2016 with face value amounting to
US$3.7 billion (P =183.2 billion) did not change, the portfolio for the said securities remained in HTC.
Also as part of the program to comply with the LCR requirements, the Parent Company introduced
the HTC business model for its Peso-denominated government securities and acquired securities
amounting to =P530.9 million in 2016. The Parent Company deemed it necessary to introduce the
HTC business model for Peso-denominated government securities since (a) BSP Circular 905 capped
the USD-denominated government securities that will qualify as HQLA and (b) the Parent Company
previously ceased its HTC business model for Peso-denominated government securities. The Bank
will comply with the requirements of BSP Circular 905 to demonstrate liquidity of qualifying HQLA
securities under the HTC business model through various methods allowed under the circular that are
consistent with the HTC business model as described under PFRS 9. This includes, but not limited
to, proxy monetization of similar securities under the Bank’s FVTPL business model.
In January 2015, the Parent Company participated in the bond swap offer by the Republic of the
Philippines. USD-denominated investment securities at amortized cost with a carrying amount of
USD86.6 million (P =3.8 billion) were swapped which resulted in a gain of USD3.1 million
(P
=136.8 million). The Parent Company concluded that the participation in these government-initiated
offerings was not inconsistent with its HTC business model as explained above.
In February and March 2015, as part of the Parent Company’s change in the business model for
managing Peso-denominated government securities (from holding to collect contractual cash flows to
realization of fair value changes) to fund its growing lending requirements, the Parent Company
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disposed certain Peso-denominated government securities classified as HTC with a carrying amount
of P
=33.0 billion. The disposals resulted in a gain of P=1.9 billion recorded in the statements of income
under ‘Gain on disposal of investment securities at amortized cost’. As a result, the Parent Company
reclassified at the beginning of the second quarter of 2015 the remaining Peso-denominated
government securities in the portfolio with carrying amount of P =14.0 billion and fair value as of
reclassification date of =
P14.6 billion to ‘Financial assets at FVTPL’, resulting in a gain of
P
=625.9 million at the beginning of the second quarter of 2015 recorded in the statements of income
under ‘Gain on reclassification of investment securities at amortized cost to financial assets at fair
value through profit or loss’. Following the reclassification, the Parent Company disposed the
remaining Peso-denominated government securities with carrying value of P =13.3 billion prior to the
reclassification resulting in additional gain of =
P515.4 million recorded in the statements of income
under ‘Gain on reclassification of investment securities at amortized cost to financial assets at fair
value through profit or loss’. Accordingly, total Peso-denominated government securities from the
portfolio sold in 2015 amounted to P =46.3 billion. As of December 31, 2015, the carrying value of the
remaining Peso-denominated government securities reclassified into FVTPL amounted to
P
=625.1 million. These securities were sold in 2016.
As of December 31, 2017 and 2016, government securities included under ‘Investment Securities at
Amortized Cost’ with a total face value of P
=550.0 million were deposited with the BSP in compliance
with the requirements of the General Banking Law relative to the Parent Company’s trust functions
(see Note 27).
12. Loans and Receivables

2017 2016 2017 2016
Corporate lending P
=307,656,447 =246,643,614
P P
=307,822,998 =246,515,034
P
Consumer lending (Note 13) 19,331,927 11,248,602 17,455,207 11,084,315
Small business lending 4,777,603 3,051,706 4,777,557 3,051,656
Residential mortgages 35,875,036 26,021,897 35,648,996 25,765,620
367,641,013 286,965,819 365,704,758 286,416,625
Less unearned discounts and deferred credits 364,877 249,002 358,457 242,144
367,276,136 286,716,817 365,346,301 286,174,481
Accrued interest receivable (Note 32) 5,674,402 5,950,514 5,666,786 5,955,992
Accounts receivable (Notes 16 and 32) 999,510 648,915 641,775 306,298
Sales contracts receivable (Note 16) 90,818 132,145 90,818 132,145
Unquoted debt instruments – 35 – –
374,040,866 293,448,426 371,745,680 292,568,916
Less allowance for credit losses 3,851,108 3,790,625 3,757,419 3,726,430
P
=370,189,758 =289,657,801
P P
=367,988,261 =288,842,486
P
In October 2017, the Parent Company sold, on a without recourse basis, certain personal loans to
SBFCI amounting to P =1.4 billion, in line with the Parent Company’s direction to grow personal loans
- public portfolio under SBFCI. The Parent Company has assessed that the sale does not affect the
HTC objective of the remaining Loans and receivables as the sale was a one-off transaction and the
amount was not significant in relation to the total loan portfolio of the Parent Company.
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On various dates in 2015, SBS sold, on a without recourse basis, certain corporate, consumer and
small business loans to the Parent Company with carrying values of = P7.5 billion at their fair values of
=
P7.2 billion. The Parent Company classified these loans under the HTC business model. At the
consolidated level, the business model for all loans and receivables remain to be HTC.
Receivable from customers consist of:

2017 2016 2017 2016
Loans (Note 32) =347,716,144 P
P =267,789,997 P
=345,779,888 P
=267,240,803
Customers’ liabilities under letters of credit and
trust receipts 13,804,059 12,536,612 13,804,059 12,536,612
Bills purchased (Note 24) 2,138,365 3,506,628 2,138,365 3,506,628
Credit card receivables 3,297,755 2,382,917 3,297,755 2,382,917
Customers’ liabilities under acceptances 684,690 749,665 684,691 749,665
367,641,013 286,965,819 365,704,758 286,416,625
Less unearned discounts and deferred credits 364,877 249,002 358,457 242,144
P
=367,276,136 P
=286,716,817 P
=365,346,301 P
=286,174,481
Loans under hedge accounting

As of December 31, 2017 and 2016, the Group’s loan receivables under corporate lending identified
as hedged items amounted to nil and =P0.3 billion, respectively. Gains from fair value changes of the
hedged items attributable to the hedged risk presented under ‘Trading and securities gain - net’ in the
statements of income amounted to nil and = P3.8 million as of December 31, 2017 and 2016,
respectively (see Note 19).
In March 2016, hedged loan receivables with carrying value amounting to P=35.1 million were prepaid
by the borrowers. Accordingly, the interest rate swap hedging instrument was dedesignated and was
reclassified to ‘Financial assets at FVTPL’ (see Note 9).
Regulatory Reporting
Current banking regulations allow banks that have no unbooked valuation reserves and capital
adjustments to exclude from nonperforming classification receivables classified as loss in the latest
examination of the BSP which are fully covered by allowance for credit losses, provided that interest
on said receivables shall not be accrued for regulatory accounting purposes.
As of December 31, 2017 and 2016, NPLs not fully covered by allowance for credit losses are as
follows:

2017 2016 2017 2016
Total NPLs P
=2,612,494 P
=2,414,276 P
=2,126,421 P
=1,956,583
Less NPLs classified as loss by the BSP and are
fully covered by allowance for credit losses 704,937 695,200 218,864 237,507
P
=1,907,557 P
=1,719,076 P
=1,907,557 P
=1,719,076
Restructured receivables of the Group and the Parent Company amounted to P =92.2 million and
P
=86.1 million, respectively, as of December 31, 2017 and P
=131.6 million and = P118.4 million,
respectively, as of December 31, 2016. Interest income on these restructured receivables amounted to
P
=3.1 million in 2017, =
P16.1 million in 2016, and P
=20.8 million in 2015 for the Group and
P
=3.1 million in 2017, =
P10.3 million in 2016, and P
=15.0 million in 2015 for the Parent Company.
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Movements in the allowance for credit losses on loans and receivables follow:
Consolidated
Small
Corporate Business Consumer Residential
Lending Lending Lending Mortgages Others Total
December 31, 2017
= 2,915,170 P
= 46,400 P
= 222,618 P
= 478,659 P
= 127,778 P
= 3,790,625
Provision for (recovery of) credit losses 64,516 38,867 649,139 (56,249) (39,804) 656,469
Accounts charged-off and transfers (34,563) – (522,440) (19,387) (39,602) (615,992)
Interest accrued on impaired receivables – – – (366) – (366)
Others 3,382 – 14,643 – 2,347 20,372
= 2,948,505 P
= 85,267 P
= 363,960 P
= 402,657 P
= 50,719 P
= 3,851,108
Individual impairment P
= 2,315,700 P
= 35,381 P
=– P
=– P
= 39,974 P
= 2,391,055
Collective impairment 632,805 49,886 363,960 402,657 10,745 1,460,053
P
= 2,948,505 P
= 85,267 P
= 363,960 P
= 402,657 P
= 50,719 P
= 3,851,108
Gross amount of loans individually
determined to be impaired P
= 16,946,683 P
= 79,157 P
=– P
=– P
= 159,322 P
= 17,185,162
December 31, 2016
=2,873,392 P
=32,912 P
=233,242 P
=194,066 P
=103,880 P
=3,437,492
Provision for credit losses 107,991 43,943 451,462 294,969 39,179 937,544
Accounts charged-off and transfers (94,471) (22,622) (455,146) (6,979) (15,281) (594,499)
Interest accrued on impaired receivables (2,755) (14,675) – (3,397) – (20,827)
Others 31,013 6,842 (6,940) – – 30,915
=2,915,170 P
=46,400 P
=222,618 P
=478,659 P
=127,778 P
=3,790,625
=2,273,214 P
=34,768 P
=61,728 P
=240,831 46,168 P
=2,656,709
P
=2,915,170 P
=46,400 P
=222,618 P
=478,659 P
=127,778 P
=3,790,625
=12,957,568 P
=108,940 P
=61,870 P
=537,460 P
=143,796 P
=13,809,634
Parent Company
Small
Corporate Business Consumer Residential
Lending Lending Lending Mortgages Others Total
December 31, 2017
= 2,915,170 P
= 46,400 P
= 159,854 P
= 478,659 P
= 126,347 P
= 3,726,430
Provision for (recovery of) credit losses 64,516 38,867 583,174 (56,249) (986) 629,322
Accounts charged-off and transfers (34,563) – (522,440) (19,387) (39,602) (615,992)
Interest accrued on impaired receivables – – – (366) – (366)
Others 3,382 – 14,643 – – 18,025
= 2,948,505 P
= 85,267 P
= 235,231 P
= 402,657 P
= 85,759 P
= 3,757,419
= 2,315,700 P
= 35,381 P
=– P
=– P
= 12,821 P
= 2,363,902
P
= 2,948,505 P
= 85,267 P
= 235,231 P
= 402,657 P
= 85,759 P
= 3,757,419
= 16,946,683 P
= 79,157 P
=– P
=– P
= 132,169 P
= 17,158,009
December 31, 2016
=2,873,504 P
=32,797 P
=132,661 P
=194,066 P
=101,530 P
=3,334,558
Provision for credit losses 107,969 44,058 389,934 294,969 40,098 877,028
Accounts charged-off and transfers (94,471) (22,622) (362,766) (6,979) (15,281) (502,119)
Interest accrued on impaired receivables (2,755) (14,675) – (3,397) – (20,827)
Others 30,923 6,842 25 – – 37,790
=2,915,170 P
=46,400 P
=159,854 P
=478,659 P
=126,347 P
=3,726,430
=2,273,214 P
=34,768 =
P– P
=240,831 P
=46,168 P
=2,594,981
P
=2,915,170 P
=46,400 P
=159,854 P
=478,659 P
=126,347 P
=3,726,430
=12,957,568 P
=108,940 =
P– P
=537,460 P
=107,328 P
=13,711,296
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As of December 31, 2017 and 2016, the fair value of the collateral held relating to the total loan
portfolio amounted to = P170.5 billion and =
P103.8 billion, respectively, for the Group and
P
=166.9 billion and = P102.1 billion, respectively, for the Parent Company. The collateral consists of
cash, securities, letters of guarantee and real and personal properties.
The Group and the Parent Company took possession of various properties previously held as
collateral. As of December 31, 2017 and 2016, the carrying values of such properties based on BSP
guidelines amounted to =
P307.8 million and =
P235.0 million, respectively for the Group and the Parent
Company.
The following table shows the breakdown of receivable from customers as to secured and unsecured
and the breakdown of secured receivables from customers as to the type of security as of
December 31, 2017 and 2016 (amounts in millions):

2017 2016 2017 2016
Amount % Amount % Amount % Amount %
Secured by:
Real estate P
= 42,522 11.6 P
=29,380 10.2 P
= 42,296 11.6 P
=29,124 10.2
Assignment of projects/
company assets/contracts 32,474 8.8 14,598 5.1 32,474 8.9 14,598 5.1
Chattel 5,468 1.5 3,893 1.4 5,468 1.5 3,893 1.4
Mortgage trust indenture 5,171 1.4 7,123 2.5 5,171 1.4 7,123 2.5
Deposit hold-out 2,723 0.7 2,621 0.9 2,723 0.7 2,621 0.9
Others 1,782 0.5 824 0.3 539 0.1 96 0.0
90,140 24.5 58,439 20.4 88,671 24.2 57,455 20.1
Unsecured 277,501 75.5 228,527 79.6 277,034 75.8 228,962 79.9
P
= 367,641 100.0 P
=286,966 100.0 P
= 365,705 100.0 P
=286,417 100.0
As of December 31, 2017 and 2016, information on the concentration of credit as to industry follows
(amounts in millions):
2017 2016 2017 2016
Power, electricity and water
distribution P
= 69,272 18.8% P
=49,391 17.2% P
= 69,272 18.9% P
=49,391 17.2%
Wholesale and retail trade 66,275 18.0% 54,545 19.0% 66,275 18.1% 54,545 19.0%
Real estate 42,851 11.7% 42,260 14.7% 42,851 11.7% 42,260 14.8%
Manufacturing 42,502 11.6% 32,477 11.3% 42,502 11.6% 32,477 11.4%
Financial intermediaries 34,009 9.3% 28,127 9.8% 35,159 9.6% 28,624 10.0%
Transportation, storage and
communication 22,169 6.0% 10,237 3.6% 22,169 6.1% 10,237 3.6%
Others 90,563 24.6% 69,929 24.4% 87,477 23.9% 68,883 24.0%
P
= 367,641 100.0% P
=286,966 100.00% P
= 365,705 100.0% P
=286,417 100.00%
Interest income on loans and receivables consists of:

2017 2016 2015 2017 2016 2015
Loans P
= 16,244,613 P
=12,308,484 P
=9,903,299 P
= 16,177,584 P
=12,346,373 P
=9,763,553
Credit card receivables 602,860 566,716 481,962 602,860 421,642 279,272
Customers’ liabilities under letters of
credit and trust receipts 493,323 403,243 449,924 493,323 403,243 449,924
Sales contracts receivable 8,536 9,599 12,804 8,536 9,599 11,952
Bills purchased 7,208 4,501 4,993 7,208 4,501 4,975
Interest income accrued on impaired
loans and receivables 366 20,827 16,431 366 20,827 16,431
Unquoted debt instruments − 1 68 − − −
P
= 17,356,906 P
=13,313,371 P
=10,869,481 P
= 17,289,877 P
=13,206,185 P
=10,526,107
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Of the total receivables from customers of the Group and of the Parent Company, 53.5% and 53.8%,
respectively as of December 31, 2017, and 48.8% and 48.9%, respectively as of December 31, 2016,
are subject to periodic interest repricing. Remaining receivables from customers, for the Group and
the Parent Company, earn annual fixed interest rates, as follows (in percentages):
2017 2016 2015 2017 2016 2015
Peso-denominated 1.17-36.83 1.50-58.63 1.50-39.53 1.17-36.83 1.50-58.63 1.50-39.53
Foreign currency-denominated 0.76-9.14 0.08-9.15 0.76-9.14 0.76-9.14 0.08-9.15 0.76-9.14
Sales contracts receivable earns interest rates ranging from 6.0% to 14.0% in 2017, 6.0% to 15.0% in
2016, and 8.0% to 15.4% in 2015 for the Group and the Parent Company.
13. Investments in Subsidiaries and a Joint Venture
Investments in Subsidiaries and Non-controlling Interest

This account consists of investments in:
% of Ownership Consolidated Parent Company
2017 2016 2017 2016 2017 2016
Subsidiaries:
Cost:
SBFCI (Note 4) 99.54 99.54 =
P– =
P– P
= 1,734,875 P
=1,734,875
SBCIC 100.00 100.00 – – 500,000 500,000
SBCC 100.00 100.00 – – 325,000 325,000
LPII 100.00 100.00 – – 125,000 125,000
SBFI 100.00 100.00 – – 50,000 50,000
– – 2,734,875 2,734,875
Accumulated equity in net income
Balance at beginning of year – – 708,242 648,071
Share in net income – – 185,107 210,171
Dividends receivable – – (195,000) –
Dividends – – – (150,000)
Balance at end of year – – 698,349 708,242
Accumulated equity in OCI
Remeasurement gains on defined benefit
plans – – 70,801 57,264
Net unrealized gain on financial assets at
fair value through other comprehensive
income – – 15,176 18,428
Balance at end of year – – 85,977 75,692
– – 3,519,201 3,518,809
Joint Venture (SBML)
Cost 60.00 60.00 150,058 150,058 150,058 150,058
Accumulated equity in net income
Balance at beginning of year 91,345 70,153 91,345 70,153
Share in net income 25,452 21,192 25,452 21,192
Balance at end of year 116,797 91,345 116,797 91,345
266,855 241,403 266,855 241,403
P
= 266,855 =
P241,403 P
= 3,786,056 P
=3,760,212
The details of the dividends by the subsidiaries to the Parent Company is provided below:
Subsidiary Date of declaration Per share Total Amounts in thousands
SBCC June 29, 2017 =60.0 per share
P =195,000
P
SBCIC December 16, 2016 30.0 per share 150,000
SLC February 18, 2015 2.5 per share 25,264
Disposal of Diners Club International Credit Cards

On June 14, 2016, SBCC signed a Portfolio Sale and Purchase Agreement (PSPA) with BDO
Unibank, Inc. (BDO), whereby BDO accepted SBCC’s offer to sell its rights as the exclusive issuer
and acquirer of Diners Club International credit cards in the Philippines effective September 30,
2016. The move is a strategic decision to focus on the existing MasterCard as the main credit card
*SGVFS027055*
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offering. The acquisition includes SBCC’s existing Diners Club portfolio and its cardholder base.
Pursuant to the PSPA, SBCC transferred a substantial portion of its credit card receivables with
carrying values of P
=586.7 million to BDO for a consideration of P
=751.7 million. SBCC recognized a
gain of =
P165.0 million from this transaction included under ‘Miscellaneous income’ (see Note 31).
As part of the PSPA, SBCC shall provide transition services, including operational and system
support for automated teller machine transactions of the cardholders to facilitate the continued
management and servicing of the sold portfolio. The transition fees received by SBCC amounted to
P
=73.9 million in 2017 and =P27.5 million in 2016, included under ‘Service fees - miscellaneous’
(see Note 30).
Discontinued operations
The Parent Company’s BOD, in its meeting held on November 25, 2015, approved the sale of its
shareholdings in SLC to focus on the core business of banking. SLC is a joint venture with a
Singaporean listed company and a local partner. It was incorporated on July 19, 1995 primarily to
engage in the acquisition and holding for investment of real estate. On December 1, 2015, the Share
Purchase Agreement was signed and executed for a consideration of P =1.6 billion.
On December 15, 2015, the Closing Date, the closing conditions were fulfilled and the sale of shares
of SLC was consummated.
As a result of the sale of SLC, the Group and the Parent Company recognized gain (net of tax) of
=
P307.7 million.
The summarized financial information of SLC is provided below. This information is based on
amounts after inter-company eliminations.
Results of discontinued operations:

2015*
Interest income =14,891
P
Rent (Note 33) 94,658
Profit from assets sold/exchanged (Note 16) 69,609
Total operating income 179,158
Operating expenses
Depreciation and amortization (Note 14) 16,389
Occupancy costs 5,124
Taxes and licenses 4,861
Amortization of software costs 19
Miscellaneous 50,403
Total operating expenses 76,796
Income before income tax 102,362
Provision for income tax 42,101
Net income from discontinued operations 60,261
Gain on sale of a subsidiary, net of tax 307,668
Total discontinued operations =367,929
P
Net income from discontinued operations attributable to non-
controlling interest P
=53,342
Basic/diluted earnings per share from discontinued operations =0.52
P
*For the period January 1, 2015 to December 15, 2015
*SGVFS027055*
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Cash flows generated from (used in) discontinued operations:
2015*
Operating =355,488
P
Financing (48,764)
Net increase in cash and cash equivalents =306,724
P
*For the period January 1, 2015 to December 15, 2015
Effect of disposal on the financial position of the Group as of December 15, 2015:
2015
Loans and receivables =299,838
P
Property and equipment 61
Investment properties 1,262,476
Other assets 277,689
Income tax payable (6,944)
Accrued interest, taxes and other expenses (929)
Deferred tax liability (28,993)
Other liabilities (154,576)
Net assets 1,648,622
Non-controlling interest (1,103,161)
Net assets attributable to Parent Company =545,461
P
Cash consideration received =1,600,000

P
Cash and cash equivalents transferred (640,570)
Net cash inflow =959,430
P
Integration of SBS to the Parent Company

On February 25, 2014, the Parent Company’s BOD approved the integration of SBS. On January 8,
2015, the BSP approved the purchase of all assets and assumption of all liabilities of SBS by the
Parent Company. On January 14, 2015, the BSP clarified that SBS will not become a shell
corporation after the integration because it will retain cash to meet its capital requirement as a thrift
bank, and after one year of dormancy, shall go back to the BSP for consideration to resume its
banking operations. On its letter dated January 29, 2015, the PDIC also granted the consent to the
proposed sale of all assets and assumption of all liabilities of SBS to the Parent Company under the
Resolution No. 2014-12-290 dated December 19, 2014.
Assets and liabilities with carrying values of =

P8.3 billion and =
P9.6 billion, respectively, in the books
of SBS were sold/transferred to SBC at their fair values of =P8.4 billion and P=9.7 billion, respectively
on transfer date. SBS paid the Parent Company for the difference between the fair value of the assets
and liabilities transferred amounting to P
=1.3 billion.
On May 26, 2016, the BSP approved the request of SBS to extend the license and retain the vehicle
on a dormant status for another year or until January 25, 2017.
Conversion of SBS to SBFCI

On November 24, 2016 and December 15, 2016, the BOD and stockholders of SBS, respectively,
approved the conversion of SBS from a savings bank to a finance company. On April 11, 2017, the
Monetary Board (MB) of the BSP, in its Resolution No. 616, approved the voluntary surrender of
SBS of its thrift bank, trust and FCDU licenses, subject to submission of certain regulatory
requirements.
*SGVFS027055*
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On August 4, 2017, the SEC approved the conversion of SBS from a savings bank to a finance
company. On the same date, SEC also approved the Amended Articles of Incorporation and By-
Laws of SBS to operate as a financing company in accordance with the Financing Act of 1998
(Republic Act. No. 8556) under the name of SBFCI.
On September 28, 2017, the BOD of SBFCI approved the organizational structure of the Company.
Interest in a Joint Venture

The summarized financial information of the joint venture and reconciliation of the carrying amount
of the investment in consolidated financial statements are set out below (in millions):
2017 2016
Cash and cash equivalents P
=124 =104
P
Loans and other receivables - current 1,167 1,236
Non-current assets 1,050 639
Current liabilities (1,583) (1,107)
Non-current liabilities (355) (504)
Equity P
=403 =368
P
Proportion of the Group’s ownership 60% 60%
Carrying amount of the investment P
=267 =241
P
2017 2016
Income
Leasing and other income P
=123 P88
=
Interest expense (38) (22)
Net interest income 85 66
Other income 42 28
Operating expenses (67) (49)
Income before income tax 60 45
Provision for income tax (18) (10)
Net income P
=42 =35
P
Group’s share for the year P
=25 =21
P
Depreciation expense amounting to P

=4.0 million in 2017 and P=3.1 million in 2016 is included under
‘Operating expenses’. SBML has no contingent liabilities or capital commitments as of
December 31, 2017 and 2016.
14. Property and Equipment
The composition of and movements in the Group’s and the Parent Company’s property and
equipment follow:
Consolidated
Furniture,
Building and Fixtures and Transportation Leasehold
Land Improvements Equipment Equipment Improvements Total
December 31, 2017
Cost
Balance at beginning of year = 366,832
P = 2,324,024
P = 2,460,921
P = 680,930
P = 418,839
P = 6,251,546
P
Additions − 105,791 583,696 578,370 291,717 1,559,574
Disposals (4,385) (881) (179,483) (34,290) (5,171) (224,210)
Amortization of leasehold improvements − − − − (197,563) (197,563)
Reclassifications − − 1,185 7,232 − 8,417
Balance at end of year 362,447 2,428,934 2,866,319 1,232,242 507,822 7,397,764
(Forward)
*SGVFS027055*
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Consolidated
Furniture,
Accumulated Depreciation
Balance at beginning of year =−
P = 1,274,488
P = 1,308,734
P = 185,803
P =−
P = 2,769,025
P
Depreciation − 101,884 403,736 195,902 − 701,522
Disposals − (488) (164,318) (27,702) − (192,508)
Reclassifications − − 951 6,052 − 7,003
Balance at end of year − 1,375,884 1,549,103 360,055 − 3,285,042
Allowance for Impairment Loss
Balance at beginning of year 20,485 4,603 − − − 25,088
Recovery of impairment losses (Note 15) (14,860) (1,579) − − − (16,439)
Balance at end of year 5,625 3,024 − − − 8,649
Net Book Value at End of Year = 356,822
P = 1,050,026
P = 1,317,216
P = 872,187
P = 507,822
P = 4,104,073
P
December 31, 2016
Cost
=370,704 P
=2,092,235 P
=1,806,735 P
=403,408 P
=354,257 P
=5,027,339
Additions − 307,355 792,933 344,834 238,697 1,683,819
Disposals (3,872) (75,566) (138,747) (67,312) (62,543) (348,040)
Amortization of leasehold improvements − − − − (111,572) (111,572)
Balance at end of year 366,832 2,324,024 2,460,921 680,930 418,839 6,251,546
Balance at beginning of year − 1,205,054 1,094,518 104,754 − 2,404,326
Depreciation − 69,668 322,776 108,191 − 500,635
Disposals − (234) (108,560) (27,142) − (135,936)
Balance at beginning of year 23,975 1,113 − − − 25,088
Provision for (recovery of) of impairment
losses (Note 15) (3,490) 3,490 − − − −
Net Book Value at End of Year P
=346,347 P
=1,044,933 P
=1,152,187 P
=495,127 P
=418,839 P
=3,457,433
Parent Company
Furniture,
December 31, 2017
Cost
P = 2,311,542
P = 2,164,773
P = 181,589
P = 415,733
P = 5,505,142
P
Additions − 105,791 494,676 50,543 290,572 941,582
Disposals (4,385) (1,903) (165,657) (17,272) (2,955) (192,172)
Amortization of leasehold
improvements − − − − (196,980) (196,980)
Balance at beginning of year − 1,261,335 1,171,045 81,377 − 2,513,757
Depreciation − 103,448 361,502 36,107 − 501,057
Disposals − (488) (123,836) (11,361) − (135,685)
Balance at end of year =−
P = 1,364,295
P = 1,408,711
P = 106,123
P =−
P = 2,879,129
P
P = 5,159
P =−
P =−
P =−
P = 46,734
P
Recovery of impairment losses
(Note 15) (11,677) (4,919) − − − (16,596)
Balance at end of year 29,898 240 − − − 30,138
Net Book Value at End of Year = 397,222
P = 1,050,895
P = 1,085,081
P = 108,737
P = 506,370
P = 3,148,305
P
December 31, 2016

Cost
=435,377 P
=2,079,753 P
=1,602,863 P
=160,472 P
=352,040 P
=4,630,505
Additions − 307,355 694,383 75,795 235,944 1,313,477
Disposals (3,872) (75,566) (132,473) (54,678) (61,697) (328,286)
Amortization of leasehold
improvements − − − − (110,554) (110,554)
Balance at beginning of year − 1,186,834 981,515 72,576 − 2,240,925
Depreciation − 74,735 292,239 30,332 − 397,306
Disposals − (234) (102,709) (21,531) − (124,474)
(Forward)
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Parent Company
Furniture,
=45,065 P
=1,669 =
P− =
P− =
P− P
=46,734
Provision for (recovery of)
impairment losses (Note 15) (3,490) 3,490 − − − −
=389,930 P
=1,045,048 P
=993,728 P
=100,212 P
=415,733 P
=2,944,651
As of December 31, 2017 and 2016, the cost of fully depreciated property and equipment still in use
both amounted to P
=1.7 billion for the Group and the Parent Company.
The details of depreciation and amortization recognized in the statements of income follow:
2017 2016 2015 2017 2016 2015
Property and equipment P
= 701,522 P
=500,635 P
=416,849 P
= 501,057 P
=397,306 P
=368,207
Leasehold improvements 197,563 111,572 117,466 196,980 110,554 111,703
Investment properties (Note 15) 29,369 15,406 24,330 28,463 13,689 5,984
Other properties acquired (Note 16) 15,510 12,454 7,241 15,659 12,207 4,126
943,964 640,067 565,886 P
= 742,159 P
=533,756 P
=490,020
Total depreciation and amortization from
discontinued operations (Note 13) – – (16,389)
Total depreciation and amortization from
continuing operations P
= 943,964 P
=640,067 P
=549,497
15. Investment Properties
The composition of and movements in the Group and the Parent Company’s investment properties
follow:
Consolidated
Building and
Land Improvements Total
December 31, 2017
Cost
=597,304 P
=147,517 P
=744,821
Additions (Note 37) 111,053 142,102 253,155
Disposals (77,939) (38,142) (116,081)
=630,418 P
=251,477 P
=881,895
=– P
=52,672 P
=52,672
Depreciation (Note 14) – 29,369 29,369
Disposals – (27,985) (27,985)
Balance at end of year – 54,056 54,056
Balance at beginning of year 26,537 6,561 33,098
Provision for impairment losses 4,080 6,391 10,471
Disposals (6,280) (756) (7,036)
Balance at end of year 24,337 12,196 36,533
=606,081 P
=185,225 P
=791,306
December 31, 2016
Cost
Balance at beginning of year P549,805
= P68,788
= P618,593
=
Additions (Note 37) 112,351 103,390 215,741
Disposals (64,852) (24,661) (89,513)
Balance at end of year =597,304
P =147,517
P =744,821
P
(Forward)
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Consolidated
Building and
Balance at beginning of year P–
= P50,722
= P50,722
=
Disposals – (13,456) (13,456)
Provision for (recovery of) impairment
losses 7,656 (1,137) 6,519
Disposals (13,036) (599) (13,635)
Net Book Value at End of Year =570,767
P =88,284
P =659,051
P
Parent Company
Building and
December 31, 2017
Cost
=530,523 P
=224,817 P
=755,340
Additions (Note 37) 111,053 142,102 253,155
Disposals (75,722) (32,274) (107,996)
Balance at beginning of year – 53,770 53,770
Disposals – (21,196) (21,196)
Disposals (3,819) (767) (4,586)
=532,439 P
=261,333 P
=793,772
December 31, 2016
Cost
Balance at beginning of year P489,621
= P143,182
= P632,803
=
Additions (Note 37) 112,351 103,390 215,741
Disposals (71,449) (21,755) (93,204)
Balance at beginning of year – 50,291 50,291
Disposals – (10,210) (10,210)
Disposals (17,806) (599) (18,405)
Net Book Value at End of Year =500,289
P =164,780
P =665,069
P
Investment properties include real estate properties acquired in settlement of loans and receivables.
The difference between the fair value of the asset upon foreclosure and the carrying value of the loan
is recognized under ‘Profit from assets sold/exchanged’.
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The fair values of investment properties are disclosed in Note 6.
As of December 31, 2017 and 2016, the carrying value of investment properties still subject to
redemption amounted to =
P173.5 million and =
P147.9 million, respectively, for the Group and the
Parent Company.
In 2017, 2016 and 2015, rental income (included under ‘Rent income’ in the statements of income) on
investment properties, which are leased out under operating leases, amounted to P =1.0 million, nil, and
=
P117.8 million, respectively, for the Group and =
P1.0 million, nil, and =
P4.7 million, respectively, for
the Parent Company.
In 2017, 2016 and 2015, direct operating expenses, consisting of depreciation and amortization and
repairs and maintenance (included under ‘Occupancy costs’ in the statements of income) pertaining to
investment properties amounted to =
P35.4 million, =
P19.0 million, and P=31.3 million, respectively, for
the Group and P
=36.3 million, =
P19.0 million, and =
P14.6 million, respectively, for the Parent Company.
Provision for (recovery of) impairment losses on non-financial assets in the statements of income are
as follows:

2017 2016 2015 2017 2016 2015
Property and equipment
(Note 14) (P
= 16,439) =
P− (P
=12,400) (P
= 16,596) =
P− (P
=12,400)
Investment properties 10,471 6,519 3,165 13,775 9,271 (15,979)
Other properties acquired
(Note 16) 640 310 2 641 346 228
(P
= 5,328) P
=6,829 (P
=9,233) (P
= 2,180) P
=9,617 (P
=28,151)
16. Intangible and Other Assets
Intangible assets consist of:

2017 2016 2017 2016
Branch licenses P
=1,460,000 =1,440,000
P P
=1,445,000 =1,425,000
P
Software costs 550,539 435,143 548,709 423,875
Exchange trading right 8,500 8,500 – –
P
=2,019,039 =1,883,643
P P
=1,993,709 =1,848,875
P
Branch licenses of the Group amounting to P=1.5 billion represents the following:
a. 1 branch license acquired by the Parent Company from the BSP in 2017 amounting to
=
P20.0 million
b. 4 branch licenses acquired by the Parent Company from the BSP in 2016 amounting to
=
P80.0 million;
c. 11 branch licenses acquired by the Parent Company from the BSP in 2014 amounting to
=
P220.0 million;
d. 24 branch licenses acquired by the Parent Company from the BSP in 2013 amounting to
=
P480.0 million;
e. 15 branch licenses acquired by the Parent Company from the BSP in 2012 amounting to
=
P300.0 million; and
f. 24 branch licenses acquired by the Parent Company from the business combination on
February 1, 2012 amounting to P =360.0 million.
*SGVFS027055*
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Movements in software costs follow:

2017 2016 2017 2016
Cost
=1,005,388 P
=687,950 P
=848,488 P
=536,228
Additions 248,123 317,763 247,724 312,585
Disposals (14,094) (325) − (325)
Balance at end of year 1,239,417 1,005,388 1,096,212 848,488
Accumulated Amortization
Amortization 126,127 69,767 122,890 65,725
Disposals (7,494) − − −
=550,539 P
=435,143 P
=548,709 P
=423,875
As of December 31, 2017 and 2016, the latest transacted price of SBEI’s exchange trading right
amounted to =
P8.5 million.
Other assets consist of:

2017 2016 2017 2016
Cash collateral deposits P
=1,016,454 P
=2,567,297 P
=1,016,454 P
=2,567,297
Rental and security deposits (Note 32) 321,154 298,258 317,070 280,284
Documentary stamps 318,717 97,716 317,949 97,483
Prepaid expenses 284,174 146,238 141,088 104,455
Pension asset (Note 29) 254,610 38,164 221,329 –
Returned checks and other cash items 43,619 104,533 43,619 104,533
Other properties acquired – net 36,770 44,143 36,792 44,823
Miscellaneous 342,096 320,182 323,720 260,887
2,617,594 3,616,531 2,418,021 3,459,762
Allowance for impairment losses
Balance at beginning and end of year 13,150 13,150 – –
P
=2,604,444 P
=3,603,381 P
=2,418,021 P
=3,459,762
Cash collateral deposits represent the Parent Company’s restricted deposits for its treasury
transactions such as interest rate swaps and SSURA. The fair value of these deposits approximates
their carrying amount. As of December 31, 2017 and 2016, ‘Other assets – miscellaneous’ includes
prepaid employee benefits under car plan program amounting to P =126.75 million and P =109.1 million
for the Group, respectively, and =P125.04 million and =
P104.5 million for the Parent Company,
respectively.
The Group did not recognize any provision for impairment loss on other assets in 2017 and 2016.
Interest in a Joint Operation

On June 29, 2009, SLC entered into a memorandum of agreement with RLC for the development of
SLC’s land located at the corner of Valero and Rufino streets, Makati City (previously being rented
out as parking space) into residential condominium units. The parties agreed that SLC will contribute
the land while RLC will contribute its expertise as a developer and contribute financial capital by way
of funding the development and all related expenses of the proposed residential condominium
buildings and related site development and improvements. SLC is entitled to 30.0% of the gross floor
area plus share of parking lots. As the exclusive marketing manager of the project, RLC is entitled to
a marketing and management fee of 11.0% of the contract price.
*SGVFS027055*
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The project will consist of two residential condominium buildings - Tower 1 and Tower 2. The
construction of Tower 1 commenced in August 2011 and was completed in December 2014. As of
December 15, 2015 and December 31, 2014, pre-selling sales level of Tower 1 reached 96.0% and
92.0%, while the pre-selling sales level of Tower 2 reached 60.0% and 49.0%. The construction of
Tower 2 commenced in August 2012 and completed in 2016. The construction of Tower 2
commenced in August 2012 and completed in 2016. Tower 2 was launched in January 2012.
As a result of the commencement of development for the projects, SLC recognized gain from sale of
condominium units amounting to =P69.6 million in 2015 included as part of discontinued operations
(see Note 13). The Parent Company sold its shareholdings in SLC in 2015.
Other properties acquired represent chattel mortgages foreclosed from loan borrowers. Gain or loss
upon foreclosure is included under ‘Profit from assets sold/exchanged’ in the statements of income.
Movements in the other properties acquired by the Group and the Parent Company follow:

2017 2016 2017 2016
Cost
=56,590 P
=20,259 P
=55,718 P
=18,497
Additions (Note 37) 47,762 60,692 47,762 60,692
Disposals (52,066) (24,361) (51,319) (23,471)
Depreciation (Note 14) 15,510 12,454 15,659 12,207
Disposals (12,788) (6,094) (11,467) (4,786)
Accumulated Impairment Loss
Balance at beginning of year 373 129 438 228
Provision for impairment losses (Note 15) 640 310 641 346
Disposal (293) (66) (359) (136)
Balance at end of year 720 373 720 438
=36,770 P
=44,143 P
=36,792 P
=44,823
17. Deposit Liabilities
On May 8, 2014, the BSP, through BSP Circular 832, approved the 1.0% increase in reserve
requirements effective May 30, 2014, thereby further increasing the reserve requirements on non-
FCDU deposit liabilities of the Parent Company and SBS from 19.0% to 20.0% and from 7.0% to
8.0%, respectively. On February 15, 2018, the BSP, through BSP Circular 997, approved the 1.0%
reduction in reserve requirements effective March 2, 2018 thereby reducing the reserve requirements
on non-FCDU deposit liabilities of the Parent Company from 20.0% to 19.0%.
As mandated by the Circular, only demand deposit accounts maintained by banks with the BSP are
eligible for compliance with reserve requirements, thereby excluding government securities and cash
in vault as eligible reserves. Further, deposits maintained with the BSP in compliance with the
reserve requirement shall no longer be paid interest.
As of December 31, 2017 and 2016, the Group was in compliance with such regulations.
As of December 31, 2017 and 2016, the Group and the Parent Company has set aside ‘Due from
BSP’ as reserves amounting to P
=56.3 billion and =
P44.6 billion, respectively.
*SGVFS027055*
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Long Term Negotiable Certificate of Deposits maturing on February 17, 2019

On February 17, 2012, the Parent Company issued 5.50% fixed coupon rate (EIR of 5.62%)
unsecured LTNCD at par value of =P5.0 billion.
The issuance of the foregoing LTNCD under the terms approved by the BOD was approved by the
BSP on November 24, 2011.
Long Term Negotiable Certificate of Deposits matures on August 16, 2019

On August 15, 2012, the Parent Company issued 5.50% fixed coupon rate (EIR of 5.62%) unsecured
LTNCD at par value of =
P5.0 billion.
BSP on April 26, 2012.
Long Term Negotiable Certificate of Deposits maturing on May 8, 2023

On November 8, 2017, the Parent Company issued 3.875% fixed coupon rate (EIR of 4.01%)
unsecured LTNCD at par value of =P8.6 billion.
BSP on October 5, 2017.
The movement of unamortized debt issue costs on LTNCDs follows:
2017 2016
Beginning balance P
=27,262 =37,710
P
Addition 58,711 −
Amortization (12,448) (10,448)
=73,525 =27,262
P
Interest expense on deposit liabilities consists of:

2017 2016 2015 2017 2016 2015
Demand P
=151,869 P
=171,354 P
=155,336 P
=152,860 P
=172,724 P
=155,816
Savings 1,770,434 1,486,034 1,362,863 1,782,254 1,491,804 1,364,973
Time 2,695,651 1,282,539 1,118,505 2,679,442 1,259,055 1,063,006
LTNCD 611,510 560,448 559,859 611,510 560,448 559,859
P
=5,229,464 P
=3,500,375 P
=3,196,563 P
=5,226,066 P
=3,484,031 P
=3,143,654
Ranges of annual fixed interest on deposit liabilities excluding LTNCD follow (in percentages):
2017 2016 2015

Peso-denominated 0.10-2.30 0.10-2.00 0.10-2.15
Foreign currency-denominated 0.125-4.25 0.25-3.00 0.10-3.28
*SGVFS027055*
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18. Financial Liabilities at Fair Value through Profit or Loss
2017 2016
Derivative liabilities (Note 6):
Currency forwards P
=1,416,071 =195,344
P
Interest rate swaps 593,305 457,784
Warrants 3,151 3,137
Interest rate futures 655 −
P
=2,013,182 =656,265
P
Interest expense on derivative instruments consists of:
2017 2016 2015

=430,246 =737,191
P =908,854
P
Cross-currency swaps 157,997 59,322 1,695
P
=588,243 =796,513
P =910,549
P
19. Derivative Liabilities Designated as Hedges
The Parent Company uses interest rate swaps to hedge certain receivables from customers from fair
value changes due to fluctuations in benchmark interest rates (see Note 12). The hedges have been
assessed as perfectly effective as the critical terms of the swaps match those of the hedged
receivables.
As of December 31, 2017 and 2016, the aggregate negative fair value of the interest rate swaps
designated as hedging instruments amounted to nil and P =3.8 million, respectively, with total notional
amounts of nil and P =0.3 billion, respectively. In 2017, 2016, and 2015, net interest expense on
derivative liabilities designated as hedges amounted to = P4.2 million, P
=16.4 million, and P=25.2 million,
respectively.
20. Bills Payable and Securities Sold Under Repurchase Agreements
This account consists of borrowings from:

2017 2016 2017 2016
SSURA =107,630,850 P
P =143,445,281 =
P107,630,850 P=143,445,281
Local banks 75,077,393 54,367,190 74,927,393 54,277,190
Foreign banks 11,044,516 12,840,687 11,044,516 12,840,687
Local government banks with relending
facilities 209,292 224,514 209,292 224,514
=193,962,051 P
P =210,877,672 P
=193,812,051 P
=210,787,672
*SGVFS027055*
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The following are the carrying values of the investment securities pledged and transferred under
SSURA transactions of the Group:
December 31, 2017 December 31, 2016

Carrying Carrying
Value Fair Value Value Fair Value
(Note 11)
Treasury bonds =127,579,271 P
=129,597,599 P
P =176,507,975 =
P168,437,918
Private bonds − − 2,619,439 2,654,846
=127,579,271 P
=129,597,599 P
P =179,127,414 P
=171,092,764
For the years ended December 31, 2017, 2016 and 2015, bills payable and SSURA, notes payable,
interest expense on subordinated notes and other borrowings in the statements of income consist of
the following:

2017 2016 2015 2017 2016 2015
Bills payable and
SSURA P
=2,423,061 P
=1,490,445 P
=768,078 P
=2,417,270 P
=1,487,931 P
=763,533
Notes Payable (Note 21) 613,404 577,787 502,093 613,404 577,787 502,093
Subordinated note
(Note 22) 543,590 540,293 547,433 543,590 540,293 547,433
Others (Note 29) 7,021 9,931 − 7,021 10,049 −
P
=3,587,076 P
=2,618,456 P
=1,817,604 P
=3,581,285 P
=2,616,060 P
=1,813,059
Annual fixed interest rate ranges on the Group’s and the Parent Company’s interbank borrowings and
rediscounting availments follow (in percentages):
2017 2016 2015

Interbank borrowings:
Peso-denominated 2.50-8.00 2.50-8.00 2.50-8.00
Foreign currency-denominated 0.08-2.12 0.09-1.75 0.09-1.35
Rediscounting availments:
Foreign currency-denominated – – 0.04-1.00
21. Notes Payable
Senior Unsecured Notes due 2020

In February, 2015, the Parent Company issued $300.0 million senior unsecured notes (“Senior
Notes”) due on February 3, 2020. The Senior Notes, which are listed in the Singapore Stock
Exchange, were priced at par with a coupon rate of 3.95% (EIR of 4.04%) payable on a semi-annual
basis commencing on August 3, 2015.
The Parent Company incurred debt issue costs amounting to P

=61.0 million. The movements in
unamortized discount follow:
2017 2016
Discount on issuance of notes P
=46,603 =55,322
P
Translation adjustment 377 2,491
=30,598 =46,603
P
*SGVFS027055*
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Interest expense on notes payable amounted to P

=613.4 million, P
=577.8 million and P
=502.1 million in
2017, 2016 and 2015, respectively.
22. Subordinated Note
Tier 2 Unsecured Subordinated Notes due 2024

On July 11, 2014, the Parent Company issued P =10.0 billion Unsecured Subordinated Notes (2024 Sub
Notes) due on July 11, 2024 qualifying as Tier 2 Capital. The Notes will initially bear interest at the
rate of 5.375% per annum (EIR of 5.464%) from and including July 11, 2014 to but excluding
July 11, 2019. Unless the 2024 Sub Notes are redeemed on July 12, 2019, the initial interest rate will
be reset at the equivalent of the five-year PDST-R1 plus a spread of 1.575% per annum, and such
interest will be payable commencing on July 12, 2019 up to and including July 11, 2024. The interest
of the 2024 Sub Notes for the entire term will be payable quarterly in arrears on the 11th of January,
April, July, and October of each year, commencing on October 11, 2014.
The 2024 Sub Notes also contain a tax redemption option and a regulatory redemption option which
will allow the Parent Company to redeem no less than all of the outstanding 2024 Sub Notes, at an
amount equal to 100% of the face value of the 2024 Sub Notes plus accrued interest at the interest
rate relating to the current interest period up to but excluding the date of such redemption, upon the
happening of certain events that are triggered by changes in laws and regulations.
The 2024 Sub Notes also have a loss absorption feature which means that the notes are subject to a
Non-Viability Write-Down in case of the occurrence of a Non-Viability Event, subject to certain
conditions, when the Parent Company is considered non-viable as determined by the BSP. Non-
Viability is defined as a deviation from a certain level of Common Equity Tier 1 (CET1) Ratio or the
inability of the Parent Company to continue business (closure) or any other event as determined by
the BSP, whichever comes earlier. Upon the occurrence of a Non-Viability Event, the Parent
Company shall write-down the principal amount of the notes to the extent required by the BSP, which
could go down to as low as zero. A Non-Viability Trigger Event shall be deemed to have occurred if
the BSP notifies the Issuer in writing that it has determined that a: (i) a Write-Down of the notes and
other capital instruments of the Parent Company is necessary because, without such Write-Down, the
Parent Company would become non-viable, (ii) public sector injection of capital, or equivalent
support, is necessary because, without such injection or support, the Parent Company would become
non-viable, or (iii) Write-Down of the notes and other capital instruments of the Parent Company is
necessary because, as a result of the closure of the Parent Company, it has become non-viable. A
Non-Viability Write-Down shall have the following effects: (a) it shall reduce the claim on the notes
in liquidation; (b) reduce the amount re-paid when a call or redemption is properly exercised; and
(c) partially or fully reduce the interest payments on the notes.
The issuance of the 2024 Sub Notes under the terms approved by the BOD was approved by the BSP
on May 21, 2014, subject to the Parent Company’s compliance with certain conditions.
The movements in unamortized discount follow:
2017 2016
Balance at beginning P
=55,276 =61,055
P
Balance at end P
=49,186 =55,276
P
*SGVFS027055*
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23. Accrued Interest, Taxes and Other Expenses

2017 2016 2017 2016
Accrued interest payable (Note 32) =2,119,515
P =1,694,866
P =2,119,780
P =1,695,906
P
Accrued other expenses payable 1,636,875 1,348,283 1,596,835 1,300,999
Pension liability - net (Notes 29 and 32) 1,186 137,120 – 137,120
Accrued other taxes and licenses payable 281,593 100,850 277,917 88,699
=4,039,169
P =3,281,119
P =3,994,532
P =3,222,724
P
Accrued other expenses payable includes accrual for various operating expenses such as payroll,
repairs and maintenance, utilities, rental, and contractual services. This also includes estimated
provision for probable losses arising from various legal cases of the Group (see Note 34).
24. Other Liabilities

2017 2016 2017 2016
Accounts payable (Note 32) =3,188,971
P =1,910,011
P =2,306,209
P =1,883,998
P
Payable to brokers 1,124,687 1,319,026 – –
Bills purchased - contra (Note 12) 1,001,299 2,748,250 1,001,299 2,748,250
Other deferred credits 448,660 351,036 448,660 351,036
Withholding taxes payable 186,471 128,353 181,009 122,395
Due to the Treasurer of the Philippines 46,068 23,291 46,068 23,291
Subscription payable 30,000 30,000 123,750 123,750
Dividends payable 19,556 25,912 19,556 25,912
Deposits for keys of safety deposit boxes 6,566 6,270 6,566 6,270
Miscellaneous 2,038,065 836,953 1,918,879 743,717
=8,090,343
P =7,379,102
P =6,051,996
P =6,028,619
P
Miscellaneous liabilities includes the Parent Company’s unearned access fee received from FWD
amounting to =P83.9 million and =P172.6 million as of December 31, 2017 and 2016, respectively
(see Note 30), Social Security System pension for the Group’s depositors amounting to
P
=140.2 million and =P216.5 million as of December 31, 2017 and 2016, respectively, and items in
process for clearing amounting to P=1.0 billion and P
=0.3 billion as of December 31, 2017 and 2016,
respectively, which were subsequently reversed.
*SGVFS027055*
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25. Maturity Analysis of Assets and Liabilities
The table below shows an analysis of assets and liabilities analyzed according to when they are
expected to be recovered or settled (amounts in millions):

Less Than Over Less Than Over
One Year One Year Total One Year One Year Total
December 31, 2017
Financial Assets
= 7,956 P
=− P
= 7,956 P
= 7,956 P
=− P
= 7,956
Due from BSP 56,592 − 56,592 56,592 − 56,592
Due from other banks 69,606 − 69,606 69,520 − 69,520
Interbank loans receivable and SPURA 5,689 − 5,689 5,689 − 5,689
HFT investments 3,112 − 3,112 3,014 − 3,014
Derivative assets 1,466 − 1,466 1,466 − 1,466
Others − 15 15 − 15 15
Total financial assets at FVTPL 4,578 15 4,593 4,480 15 4,495
Financial assets at FVTOCI − 200 200 − 151 151
Investment securities at amortized cost 545 229,048 229,593 545 229,048 229,593
Loans and receivables - at gross 160,047 214,359 374,406 158,200 213,904 372,104
Other assets 1,016 322 1,338 1,016 317 1,333
Total financial assets 306,029 443,944 749,973 303,998 443,435 747,433
Investments in subsidiaries and a joint
venture P
=− P
= 267 P
= 267 P
=− P
= 3,786 P
= 3,786
Property and equipment − 4,104 4,104 − 3,148 3,148
Investment properties − 791 791 − 794 794
Deferred tax assets − 1,763 1,763 − 1,580 1,580
Goodwill − 842 842 − 842 842
Intangible assets − 2,019 2,019 − 1,994 1,994
Other assets 634 632 1,266 503 582 1,085
Total non-financial assets 634 10,418 11,052 503 12,726 13,229
P
= 306,663 P
= 454,362 761,025 P
= 304,501 P
= 456,161 760,662
Less: Allowance for credit losses 3,851 3,757
Unearned discounts and
365 358
deferred credits
Total Assets P
= 756,809 P
= 756,547
Deposit liabilities P
= 349,532 P
= 63,572 P
= 413,104 P
= 351,458 P
= 63,572 P
= 415,030
Financial liabilities at FVTPL 2,013 − 2,013 2,013 − 2,013
Acceptances payable − 685 685 − 685 685
of credit − 650 650 − 650 650
outstanding 3,607 − 3,607 3,607 − 3,607
Subordinated note − 9,951 9,951 − 9,951 9,951
Notes payable − 14,948 14,948 − 14,948 14,948
expenses 3,382 375 3,757 3,437 279 3,716
Total financial liabilities 550,638 98,157 648,795 550,462 98,274 648,736
Non-financial Liabilities
Income tax payable 681 − 681 659 − 659
282 − 282 278 − 278
expenses
Total non-financial liabilities 2,486 449 2,936 2,216 449 2,665
Total Liabilities P
= 553,124 P
= 98,607 P
= 651,731 P
= 552,678 P
= 98,723 P
= 651,401
(Forward)
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Less Than Over Less Than Over
One Year One Year Total One Year One Year Total
December 31, 2016
Financial Assets
=7,693 =
P− P
=7,693 P
=7,693 =
P− P
=7,693
Due from BSP 71,663 − 71,663 71,424 − 71,424
Due from other banks 63,944 − 63,944 63,881 − 63,881
Interbank loans receivable and SPURA 690 − 690 − − −
HFT investments 1,841 − 1,841 1,840 − 1,840
Derivative assets 1,533 − 1,533 1,533 − 1,533
Others − 15 15 − 15 15
Total financial assets at FVTPL 3,374 15 3,389 3,373 15 3,388
Financial assets at FVTOCI − 178 178 − 123 123
Investment securities at amortized cost 1,001 244,953 245,954 1,001 244,953 245,954
Loans and receivables - at gross 150,038 143,660 293,698 149,151 143,660 292,811
Other assets 2,567 298 2,865 2,567 280 2,847
Total financial assets 300,970 389,104 690,074 299,090 389,031 688,121
Investments in subsidiaries and a joint
venture − 241 241 − 3,760 3,760
Property and equipment − 3,457 3,457 − 2,945 2,945
Investment properties − 659 659 − 665 665
Deferred tax assets − 1,127 1,127 − 943 943
Goodwill − 842 842 − 842 842
Intangible assets − 1,884 1,884 − 1,849 1,849
Other assets 348 390 738 306 307 613
Total non-financial assets 348 8,600 8,948 306 11,311 11,617
P
=301,318 P
=397,704 699,022 P
=299,396 P
=400,342 699,738
Less: Allowance for credit losses 3,791 3,726
Unearned discounts and
249 242
deferred credits
Total Assets P
=694,982 P
=695,770
=308,056 P
=38,542 P
=346,598 P
=310,317 =
P38,542 P
=348,859
Financial liabilities at FVTPL 656 − 656 656 − 656
hedges 4 − 4 4 − 4
Acceptances payable − 750 750 − 750 750
of credit − 384 384 − 384 384
outstanding 3,056 − 3,056 3,056 − 3,056
Notes payable − 14,869 14,869 − 14,869 14,869
Subordinated note − 9,945 9,945 − 9,945 9,945
expenses 2,668 375 3,043 2,631 366 2,997
Total financial liabilities 525,416 70,830 596,246 526,205 70,915 597,120
Non-financial Liabilities
Income tax payable 55 − 55 50 − 50
101 137 238 89 137 226
expenses
Other liabilities 965 351 1,316 866 350 1,216
Total non-financial liabilities 1,121 488 1,609 1,005 487 1,492
Total Liabilities P
=526,537 P
=71,318 P
=597,855 P
=527,210 =
P71,402 P
=598,612
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26. Equity
As of December 31, 2017 and 2016, the Parent Company’s capital stock consists of:
Shares* Amount
2017 2016 2017 2016
Common stock - P =10 par value
Authorized 1,000,000,000 1,000,000,000 P
=10,000,000 P
=10,000,000
Issued and outstanding
Balance at beginning of year 753,538,887 602,831,109 7,535,389 6,028,311
Issuance of common stock − 150,707,778 − 1,507,078
Balance at the end of the year 753,538,887 753,538,887 7,535,389 7,535,389
Preferred stock- =
P0.10 par value
Authorized 1,000,000,000 1,000,000,000 100,000 100,000
Issued and outstanding
Balance at beginning of year 1,000,000,000 602,831,109 100,000 60,283
Issuance of preferred stock − 397,168,891 − 39,717
Balance at end of the year 1,000,000,000 1,000,000,000 100,000 100,000
1,753,538,887 1,753,538,887 P
=7,635,389 P
=7,635,389
*Absolute number of shares
On November 26, 2013, the Parent Company’s stockholders approved and authorized the following:
1. Creation of 1.0 billion non-cumulative, non-participating, non-convertible voting Preferred Stock

with par value of =
P0.1 each and issuance of approximately 602.8 million of such Preferred Stock;
and
2. Increase in authorized capital stock from P
=10.0 billion to =
P10.1 billion broken down into
P
=10.0 billion Common Stock and = P100.0 million Preferred Stock.
The Preferred Stock was offered to eligible common stockholders, with each eligible stockholder
entitled to subscribe to one voting preferred share for every one common stock held as of the record
date, June 16, 2014.
On July 10, 2014, the Parent Company issued 602,831,109 non-cumulative, non-participating, non-
convertible Preferred Stock with = P0.1 par value. The dividend rate is 3.9% repricing every 10 years.
The Preferred Stock is redeemable at the sole option of the Parent Company at its issue price.
Redemption shall at all times be subject to regulation of the BSP and shall require (i) prior approval
of the BSP; (ii) replacement with at least an equivalent amount of newly paid-in-shares; (iii) a lapse
of at least five (5) years from the date of issuance; and (iv) solvency of the Parent Company.
Redemption shall not be allowed when the Parent Company is insolvent or if such redemption will
cause insolvency, impairment of capital or inability of the Parent Company to meet its debts as they
mature.
A sinking fund for the redemption of Preferred Shares amounting P =100.0 million is created upon their
issuance, to be effected by the transfer of free surplus to a restricted surplus account and shall not be
available for dividend distribution.
On January 14, 2016, the Parent Company’s BOD approved the following in its special meeting:
1. The acceptance of the Offer from BTMU to invest in a 20.0% voting interest in the Parent
Company;
2. The issuance of 150,707,778 common shares to BTMU from the unissued authorized shares of the
Parent Company at a price of =P245.0 per common share, or a total of =
P36,923,405,610;
*SGVFS027055*
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3. The listing of these newly issued common shares in the Philippine Stock Exchange, subject to the
approval of shareholders (if needed); and
4. The issuance of all unissued authorized voting preferred shares totaling to 397,168,891 at par
value of =
P0.1 per share.
The application for investment has been approved by the Monetary Board of the BSP on
February 24, 2016. The shares were issued to BTMU on April 1, 2016. Upon ratification of the
stockholders of the investment by BTMU on April 26, 2016, shares issued to BTMU were listed with
the Philippine Stock Exchange on June 28, 2016. The attributable costs of the issuance of common
and preferred shares amounting to P=102.2 million have been charged directly to equity as a reduction
from ‘Additional paid-in capital’, while costs amounting to =
P41.6 million were charged directly to
expense.
Details of the Parent Company’s cash dividend distribution follow:
Dividend
Shares Total
amounts in
Date of declaration Per share thousands Date of BSP approval Record date Payment date
Common October 27, 2017 P
=1.00 P
=753,539 n/a November 17, 2017 November 24, 2017
Common October 27, 2017 0.50 376,769 n/a November 17, 2017 November 24, 2017
Preferred April 25, 2017 0.0039 2,350 n/a June 26, 2017 July 10, 2017
Common April 25, 2017 1.00 753,539 n/a May 11, 2017 May 25, 2017
Preferred February 28, 2017 0.0048 1,908 n/a March 17, 2017 April 3, 2017
Common October 25, 2016 1.00 753,539 n/a November 10, 2016 November 24, 2016
Preferred April 26, 2016 0.0039 2,351 n/a June 27, 2016 July 11, 2016
Common September 29, 2015 1.00 602,831 November 11, 2015 November 27, 2015 December 10, 2015
Common March 24, 2015 1.00 602,831 May 19, 2015 June 3, 2015 June 30, 2015
Preferred March 24, 2015 0.0039 2,351 May 19, 2015 June 26, 2015 July 10, 2015
The computation of surplus available for dividend declaration in accordance with SEC Memorandum
Circular No. 11 issued in December 2008 differs to a certain extent from the computation following
BSP guidelines including capital adequacy requirements and other considerations such as general
loan loss reserves. The amount declared as dividends is the amount approved by the BSP. However,
in September 17, 2015, the BSP through MB Resolution No. 1516, allowed banks to declare and pay
dividends without prior BSP verification provided that pre-qualification criteria including capital
adequacy requirements are met.
The track record of the Parent Company’s registration of securities in compliance with the Securities
Regulation Code Rule 68 Annex 68-D 1(I) follows:
a. Authorized Shares
Date of SEC Approval Type of Shares Authorized Number of Shares*

April 8, 2014 Preferred 1,000,000,000
November 11, 2013 Common 1,000,000,000
July 29, 1998 Common 600,000,000
February 19, 1997 Common 450,000,000
June 8, 1995 Common 200,000,000
* Absolute number of shares
*SGVFS027055*
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b. Stock Dividends
Date of BSP Approval Percentage

July 11, 2013 20.00%
March 29, 2011 20.00%
May 26, 1998 13.75%
April 29, 1997 20.00%
March 26, 1996 20.00%
c. Stock Rights Offering
Date of SEC Approval Number of shares Registered* Offer Price

October 8, 2009 89,285,714 P
=28.00 per share
February 19, 1997 65,037,768 25.00 per share
* Absolute number of shares
d. Number of Shareholders
Year End Number of shareholders

December 31, 2017 2,185
December 31, 2016 2,184
December 31, 2015 1,834
In the consolidated financial statements, a portion of the Group’s surplus corresponding to the
accumulated net earnings of the subsidiaries amounting to = P699.0 million and =P708.2 million as of
December 31, 2017 and 2016, respectively, is not available for dividend declaration. This
accumulated equity in net earnings becomes available for dividend declaration upon receipt of
dividends from the investees, subject also to SEC and BSP rules on dividend declaration.
Surplus reserves of the Group and the Parent Company consist of:

2017 2016 2017 2016
Reserve for trust business =255,600
P =233,100
P =255,600
P =233,100
P
Reserve for self-insurance 945,200 342,200 945,200 342,200
Reserve for redemption of
preferred stock 100,000 100,000 100,000 100,000
Reserve for contingencies − 11,000 − 11,000
Others 32,185 31,574 − –
=1,332,985
P =717,874
P =1,300,800
P =686,300
P
In compliance with existing BSP regulations, 10.0% of the net profits realized by the Parent
Company from its trust business is appropriated to surplus reserve. The yearly appropriation is
required until the surplus reserve for trust business equals 20.0% of the Parent Company’s regulatory
capital.
To comply with Securities Regulation Code Rule 49.1 (B), Reserve Fund, requiring broker dealers to
annually appropriate a certain minimum percentage of its audited profit after tax as reserve fund, a
portion of the Group’s surplus corresponding to the net earnings of SBEI amounting to P =32.2 million
and =
P31.6 million as of December 31, 2017 and 2016, respectively, has been appropriated in the
consolidated financial statements and is not available for dividend declaration.
*SGVFS027055*
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The following table shows the components of comprehensive income closed to Surplus:

2017 2016 2015 2017 2016 2015
Net income attributable
to the equity holders
of the Parent
Company P
=10,264,797 P
=8,553,545 P
=7,699,327 P
=10,309,267 P
=8,496,993 P
=7,765,671
Remeasurement gains
(losses) on defined
benefit plans
(Notes 13 and 29) 226,618 (133,250) (214,764) 226,618 (133,250) (214,764)
P
=10,491,415 P
=8,420,295 P
=7,484,563 P=10,535,885 P
=8,363,743 P
=7,550,907
Capital Management
The Group considers the equity attributable to the equity holders of the Parent Company as the capital
base of the Group. The primary objectives of the Group’s capital management are to ensure that it
complies with externally imposed capital requirements and that it maintains strong credit ratings and
healthy capital ratios in order to support its business and to maximize shareholders value.
The Group manages its capital structure and makes adjustments to it in the light of changes in
economic conditions and the risk characteristics of its activities and assessment of prospective
business requirements or directions. In order to maintain or adjust the capital structure, the Group
may adjust the amount and mode of dividend payment to shareholders, issue capital securities or
undertake a share buy-back. The processes and policies guiding the determination of the sufficiency
of capital for the Group relative to its business risks are the very same methodology that have been
incorporated into the Group’s ICAAP in compliance with the requirements of BSP Circular No. 639
for its adoption. Under this framework, the assessment of risks extends beyond the Pillar 1 set of
credit, market and operational risks and onto other risks deemed material by the Group. The level
and structure of capital are assessed and determined in light of the Group’s business environment,
plans, performance, risks and budget; as well as regulatory edicts. BSP requires submission of an
ICAAP document every January 31. In 2015, while the Group has revised and created additional
triggers for its CET I capital, respectively, on top of it 2013 ICAAP to its original capital
management process, no changes were made in the objectives and policies from previous years (see
Note 11). In 2015, the Group has established the Finance Committee to oversee the Group’s ICAAP.
It recommends measures to safeguard the capital of the Group.
In March 2016, the BSP issued Circular 904, mandating the development of a recovery plan for
Domestic Systemically Important Banks, with the initial submission in June 2016. The Group was
able to enhance the 2016 ICAAP document to extend its analysis on capital to cover the guidelines
mandated by the BSP.
Regulatory Qualifying Capital

Under existing BSP regulations, the determination of the Parent Company’s compliance with
regulatory requirements and ratios is based on the amount of the Parent Company’s ‘unimpaired
capital’ (regulatory net worth) reported to the BSP, which is determined on the basis of regulatory
policies. In addition, the risk-based capital ratio of a bank, expressed as a percentage of qualifying
capital to risk-weighted assets, should not be less than 10.0% for both solo basis (head office and
branches) and consolidated basis (parent company and subsidiaries engaged in financial allied
undertakings). Qualifying capital and risk-weighted assets are computed based on BSP regulations.
*SGVFS027055*
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The regulatory Gross Qualifying Capital of the Parent Company consists of Tier 1 (core) and
Tier 2 (supplementary) capital. Tier 1 capital comprises share capital, retained earnings (including
current year profit) and non-controlling interest less required deductions such as deferred tax, benefit
pension fund asset, intangible assets and unsecured credit accommodations to DOSRI and
subsidiaries. Tier 2 capital includes unsecured subordinated note, revaluation reserves and general
loan loss provision. Certain items are deducted from the regulatory Gross Qualifying Capital, such as
but not limited to equity investments in unconsolidated subsidiary banks and other financial allied
undertakings, but excluding investments in debt capital instruments of unconsolidated subsidiary
banks (for solo basis) and equity investments in subsidiary nonfinancial allied undertakings.
Risk-weighted assets are determined by assigning defined risk weights to statements of financial
position exposures and to the credit equivalent amounts of off-balance sheet exposures. Certain items
are deducted from risk-weighted assets, such as the excess of general loan loss provision over the
amount permitted to be included in Tier 2 capital. The risk weights vary from 0.0% to 150.0%
depending on the type of exposure, with the risk weights of off-balance sheet exposures being
subjected further to credit conversion factors. For the purpose of determining the relevant risk
weight, third party credit assessments provided by Standard & Poor’s, Moody’s, Fitch and
PhilRatings were used.
Following is a summary of risk weights and selected exposure types:
Risk weight Exposure/Asset type*

0% Cash on hand; claims collateralized by securities issued by the non-government, BSP; loans
covered by the Trade and Investment Development Corporation of the Philippines; real estate
mortgages covered by the Home Guarantee Corporation
20% COCI, claims guaranteed by Philippine incorporated banks/quasi-banks with the highest credit
quality; claims guaranteed by foreign incorporated banks with the highest credit quality; loans
to exporters to the extent guaranteed by Small Business Guarantee and Finance Corporation
50% Housing loans fully secured by first mortgage on residential property; Local Government Unit
(LGU) bonds which are covered by Deed of Assignment of Internal Revenue allotment of the
LGU and guaranteed by the LGU Guarantee Corporation
75% Direct loans of defined Small Medium Enterprise and microfinance loans portfolio;
nonperforming housing loans fully secured by first mortgage
100% All other assets (e.g., real estate assets) excluding those deducted from capital (e.g., deferred
tax)
150% All NPLs (except nonperforming housing loans fully secured by first mortgage) and all
nonperforming debt securities
* Not all inclusive
With respect to off-balance sheet exposures, the exposure amount is multiplied by a credit conversion
factor (CCF), ranging from 0.0% to 100.0%, to arrive at the credit equivalent amount, before the risk
weight factor is multiplied to arrive at the risk-weighted exposure. Direct credit substitutes (e.g.,
guarantees) have a CCF of 100.0%, while items not involving credit risk has a CCF of 0.0%.
In the case of derivatives, the credit equivalent amount (against which the risk weight factor is
multiplied to arrive at the risk-weighted exposure) is generally the sum of the current credit exposure
or replacement cost (the positive fair value or zero if the fair value is negative or zero) and an
estimate of the potential future credit exposure or add-on. The add-on ranges from 0.0% to 1.5%
(interest rate-related) and from 1.0% to 7.5% (exchange rate-related), depending on the residual
maturity of the contract. For CLNs and similar instruments, the risk-weighted exposure is the higher
of the exposure based on the risk weight of the issuer’s collateral or the reference entity or entities.
As of December 31, 2017 and 2016, the Group was in compliance with the required capital adequacy
ratio (CAR).
*SGVFS027055*
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The CAR of the Group and of the Parent Company as reported to the BSP as of December 31, 2017
and 2016 follows:

2017 2016 2017 2016
Tier 1 capital P
= 103,223,871 P
=96,348,174 P
= 103,333,294 P
=96,440,680
Less Required deductions 6,366,321 3,913,172 10,803,928 8,510,671
96,857,550 92,435,002 92,529,366 87,930,009
Excess from Tier 2 deducted to
Tier 1 Capital* – – – –
Net Tier 1 Capital 96,857,550 92,435,002 92,529,366 87,930,009
Tier 2 capital 13,672,970 12,939,101 13,624,052 12,939,097
Less: Required deductions – – – –
13,672,970 12,939,101 13,624,052 12,939,097
Excess of Tier 2 deducted to
Tier 1 Capital* – – – –
Net Tier 2 Capital 13,672,970 12,939,101 13,624,052 12,939,097
Total Qualifying Capital P
= 110,530,520 P
=105,374,103 P
= 106,153,418 P
=100,869,106
Risk Weighted Assets P
= 623,685,364 P
=513,297,774 P
= 617,280,615 P
=508,351,242
Tier 1 CAR 15.53% 18.01% 14.99% 17.30%
Total CAR 17.72% 20.53% 17.20% 19.84%
*Deductions to Tier 2 Capital are capped at its total gross amount and any excess shall be deducted from Tier 1 Capital.
On January 15, 2013, the BSP issued Circular No. 781, Basel III Implementing Guidelines on
Minimum Capital Requirements, which provides the implementing guidelines on the revised risk-
based capital adequacy framework particularly on the minimum capital and disclosure requirements
for universal banks and commercial banks, as well as their subsidiary banks and quasi-banks, in
accordance with the Basel III standards. The circular is effective on January 1, 2014.
The Circular sets out a minimum Common Equity Tier 1 (CET1) ratio of 6.0% and Tier 1 capital
ratio of 7.5%. It also introduces a capital conservation buffer of 2.5% comprised of CET1 capital.
The BSP’s existing requirement for Total CAR remains unchanged at 10% and these ratios shall be
maintained at all times.
Further, existing capital instruments as of December 31, 2010 which do not meet the eligibility
criteria for capital instruments under the revised capital framework shall no longer be recognized as
capital upon the effectivity of Basel III. Capital instruments issued under BSP Circular Nos. 709 and
716 (the circulars amending the definition of qualifying capital particularly on Hybrid Tier 1 and
Lower Tier 2 capitals), starting January 1, 2011 and before the effectivity of BSP Circular No. 781,
shall be recognized as qualifying capital until December 31, 2015. In addition to changes in
minimum capital requirements, this Circular also requires various regulatory adjustments in the
calculation of qualifying capital.
On June 27, 2014, the BSP issued Circular No. 839, REST Limit for Real Estate Exposures, which
provides the implementing guidelines on the prudential REST limit for universal, commercial, and
thrift banks on their aggregate real estate exposures. The Circular sets out a minimum REST limit of
6.0% CET1 capital ratio and 10.0% risk-based capital adequacy ratio, on a solo and consolidated
basis, under a prescribed write-off rate of 25.0% on the Group’s real estate exposure. These limits
shall be complied with at all times.
On June 9, 2015, the BSP issued Circular No. 881, Implementing Guidelines on the Basel III
Leverage Ratio Framework, which provides implementing guidelines for universal, commercial, and
their subsidiary banks/quasi banks. The circular sets out a minimum leverage ratio of 5.0% on a solo
and consolidated basis and shall be complied with at all times.
*SGVFS027055*
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The Group has taken into consideration the impact of the foregoing requirements to ensure that the
appropriate level and quality of capital are maintained on an ongoing basis.
27. Trust Operations
Securities and other properties held by the Parent Company in a fiduciary or agency capacity for
clients and beneficiaries are not included in the accompanying statements of financial position since
these are not assets of the Parent Company.
Treasury notes and bills included under ‘Investment Securities at Amortized Cost’ as of
December 31, 2016 with a total face value of =
P550.0 million and ‘Financial assets at FVTPL’ as of
December 31, 2017 with a total face value of =
P600.0 million were deposited with the BSP in
compliance with the requirements of the General Banking Law relative to the Parent Company’s trust
functions (see Notes 10 and 11).
28. Income Taxes
Provision for income tax consists of:

2017 2016 2015 2017 2016 2015
Current:
Final P
=504,727 P
=158,952 P
=239,764 P
=498,910 P
=149,670 P
=232,976
Corporate 1,823,964 813,268 798,160 1,765,074 736,278 695,649
2,328,691 972,220 1,037,924 2,263,984 885,948 928,625
Deferred (642,539) (95,004) (22,267) (636,640) 10,183 (5,272)
1,686,152 877,216 1,015,657 1,627,344 896,131 923,353
Provision for income tax
from discontinued
operations (Note 13) − − (101,029) − − (58,928)
Provision for income tax
from continuing
operations P
=1,686,152 P
=877,216 P
=914,628 P
=1,627,344 P
=896,131 P
=864,425
The Group’s provision for income tax - current represents final tax, RCIT of the Parent Company’s
RBU and FCDU, SBEI, SBCC, SBRC and SBCIC, and MCIT of SBFCI and other subsidiaries.
Under Philippine tax laws, the Parent Company and its financial intermediary subsidiaries are subject
to percentage and other taxes (presented as ‘Taxes and licenses’ in the statements of income) as well
as income taxes. Percentage and other taxes paid consist principally of documentary stamp tax and
gross receipts tax.
Current tax regulations provide that the RCIT rate shall be 30.0%. Interest expense allowed as a
deductible expense is reduced by 33.0%.
An MCIT of 2.0% on modified gross income is computed and compared with the RCIT. Any excess
of the MCIT over the RCIT is deferred and can be used as a tax credit against future income tax
liability for the next three years. In addition, the NOLCO is allowed as a deduction from the taxable
income in the next three years from the year of inception. Current tax regulations also set a limit on
the amount of entertainment, amusement and recreation (EAR) expenses that can be deducted for
income tax purposes. EAR expenses are limited to 1.0% of net revenue for sellers of services. In
2017, 2016 and 2015, EAR expenses (included under ‘Miscellaneous expenses’ in the statements of
income) amounted to P =589.8 million, P=490.2 million and =
P742.2 million, respectively, for the Group
*SGVFS027055*
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and =
P579.7 million, =
P475.2 million and P
=732.2 million, respectively, for the Parent Company (see
Notes 13 and 31).
Republic Act (RA) No. 9294, which became effective in May 2004, provides that the income derived
by the FCDU from foreign currency transactions with non-residents, offshore banking units (OBUs),
and local commercial banks, including branches of foreign banks, is tax-exempt while interest income
on foreign currency-denominated loans from residents other than OBUs or other depository banks
under the expanded system is subject to 10.0% income tax.
Components of net deferred tax assets follow:

2017 2016 2017 2016
Deferred tax assets on:
Allowance for credit and
impairment losses P
=1,248,109 P
=1,133,354 P
=1,086,438 P
=962,347
Unrealized loss on derivative
liabilities 478,247 101,966 478,247 101,966
Unamortized past service cost 128,112 146,508 118,253 136,443
Accrued expenses 26,015 25,761 25,869 24,732
Accumulated depreciation on
investment properties 20,612 18,939 22,706 19,268
NOLCO/MCIT 19,056 10,440 − −
Others 267,975 72,466 258,016 64,803
2,188,126 1,509,434 1,989,529 1,309,559
Deferred tax liabilities on:
Unrealized gain on derivative
assets 313,292 364,877 313,292 364,877
Retirement asset 76,602 11,114 66,399 –
Unrealized gain on financial
assets at FVTOCI 4,485 4,394 – –
Accrued rent income 1,410 1,799 1,410 1,799
Others 28,905 78 28,905 –
424,694 382,262 410,006 366,676
Net deferred tax assets P
=1,763,432 =1,127,172
P P
=1,579,523 =942,883
P
As of December 31, 2017 and 2016, deferred tax assets of the Group and of the Parent Company that
have not been recognized in respect of the deductible temporary differences follow:
2017 2016 2017 2016
NOLCO =112
P =37,266
P =–
P =–
P
Retirement liability – 41,136 – 41,136
MCIT – 17,496 – 2,475
Accrued expenses – 272,412 – 269,603
=112
P =368,310
P =–
P =313,214
P
Details of the Group’s NOLCO follow:

Inception Year Amount Used/Expired Balance Expiry Year
2014 P109,696
= =109,696
P =–
P 2017
2015 41,720 8,044 33,676 2018
2016 11,339 – 11,339 2019
2017 114 – 114 2020
=162,869
P =117,740
P =45,129
P
*SGVFS027055*
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Details of the Group’s MCIT follow:
Inception Year Amount Used/Expired Balance Expiry Year

2014 17,177 17,177 – 2017
2015 7,952 5,257 2,695 2018
2016 958 934 24 2019
2017 2,911 – 2,911 2020
=28,998
P =23,368
P =5,630
P
A reconciliation between the applicable statutory income tax rate to the effective income tax rate
follows:

2017 2016 2015 2017 2016 2015
Statutory income tax rate 30.00% 30.00% 30.00% 30.00% 30.00% 30.00%
Tax effect of:
FCDU net income (13.46) (17.50) (12.05) (13.47) (17.57) (12.02)
Non-deductible expenses 4.12 4.39 4.43 4.06 4.40 4.26
Interest income from tax-paid
and exempt investments (4.22) (1.69) (2.73) (4.18) (1.59) (2.65)
Change in unrecognized
deferred tax assets (2.26) (2.79) (0.25) (2.21) 0.11 (0.06)
Non-taxable income (0.07) (3.11) (7.82) (0.57) (5.81) (9.14)
Effective income tax rate 14.11% 9.30% 11.58% 13.63% 9.54% 10.39%
29. Pension Obligations
The Group provides non-contributory defined benefit pension plans for all employees. Provisions for
pension obligations are established for benefits payable in the form of retirement pensions. Benefits
are dependent on years of service and the respective employee’s final compensation. The most recent
actuarial valuation was carried out as of December 31, 2017. The present value of the defined benefit
obligation, and the related current service cost and past service cost were measured using the
projected unit credit actuarial method.
The amounts of defined benefit plans are presented in the statements of financial position as follows:

2017 2016 2017 2016
Other assets (Note 16) (P
=254,610) (P
=38,164) (P
=221,329) =–
P
expenses (Note 23) 1,186 137,120 – 137,120
Net pension liability (P
=253,424) P98,956
= (P
=221,329) P137,120
=
*SGVFS027055*
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Changes in net defined benefit liability of the Group and the Parent Company in 2017 and 2016 are as
follows:
Consolidated
Present Value Fair Value of Net Retirement
of DBO Plan Assets Liability/(Asset)
December 31, 2017
=2,919,680 (P
= 2,820,724) P
=98,956
Net Benefit Cost in Statements of Income
Current service cost 258,030 – 258,030
Net interest 147,916 (141,539) 6,377
405,946 (141,539) 264,407
Benefits paid (129,948) 129,948 –
Remeasurement in Other Comprehensive Income
Return on plan assets (excluding amount
included in net interest) – (140,039) (140,039)
Actuarial changes arising from
changes in demographic assumptions 776 – 776
experience adjustments 22,551 – 22,551
Actuarial changes arising from changes
in financial assumptions (109,906) – (109,906)
(86,579) (140,039) (226,618)
Contributions paid – (390,169) (390,169)
=3,109,099 (P
= 3,362,523) (P
= 253,424)
December 31, 2016
=2,539,490 (P
=2,355,990) P
=183,500
Net interest 122,218 (112,287) 9,931
349,972 (112,287) 237,685
Benefits paid (99,814) 99,814 –
included in net interest) – 3,215 3,215
130,032 3,215 133,247
=2,919,680 (P
=2,820,724) P
=98,956
Parent Company
of DBO Plan Assets Liability (Asset)
December 31, 2017
=2,755,769 (P
= 2,618,649) P
=137,120
Net interest 141,095 (134,075) 7,020
385,494 (134,075) 251,419
Benefits paid (118,373) 118,373 –
(Forward)
*SGVFS027055*
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Parent Company
of DBO Plan Assets Liability (Asset)
included in net interest) P
=– (P
= 137,269) (P
= 137,269)
(75,812) (137,269) (213,081)
Transferred liability (asset) 133,512 (141,760) (8,248)
=3,080,590 (P
= 3,301,919) (P
= 221,329)
December 31, 2016
=2,380,641 (P
=2,172,152) P
=208,489
Current service cost 211,579 211,579
Net interest 114,747 (104,698) 10,049
326,326 (104,698) 221,628
Benefits paid (91,401) 91,401 –
included in net interest) =
P– (P
=3,083) (P
=3,083)
P
=140,203 (P
=3,083) P
=137,120
Contributions paid =
P– (P
=430,117) (P
=430,117)
=2,755,769 (P
=2,618,649) P
=137,120
The fair value of plan assets by each class as at the end of the reporting period follow:

2017 2016 2017 2016
Debt instruments:
Government Securities = 945,156
P P
=928,397 = 925,214
P P
=877,439
High Grade 253,645 191,604 237,921 159,894
Standard Grade 336,040 236,945 321,155 203,777
1,534,841 44.9 1,356,946 47.9 1,484,290 44.2 1,241,110 47.2
Equity instruments:
Financial intermediaries 1,042,644 544,568 1,038,957 503,761
Power, electricity and water
distribution 142,138 75,923 141,235 70,633
Wholesale/Retail Trade 89,185 57,615 89,185 50,934
Transport, storage and
communication 67,373 57,357 67,373 55,121
Real estate 220,467 32,785 220,467 27,386
Manufacturing 530 514 530 –
Others 35,374 14,829 35,374 13,220
1,597,711 46.8 783,591 27.7 1,593,121 47.5 721,055 27.5
Deposits in banks 1,408 0.0 183,721 6.5 972 0.0 173,632 6.6
Investments in Unit Investment
Trust Funds P
= 167,065 4.9 P
=423,306 14.9 P
= 162,398 4.8 P
=410,302 15.6
Loans and other receivables:
Government Securities = 16,922
P P
=15,590 = 16,669
P P
=14,715
High Grade 1,982 1,152 1,902 978
Standard Grade 3,294 2,258 3,194 2,048
Not rated 93,217 65,805 93,188 64,790
115,415 3.4 84,805 3.0 114,953 3.4 82,531 3.1
Total fund asset 3,416,440 100.0 2,832,369 100.0 3,355,734 100.0 2,628,630 100.0
Total fund liability (53,917) (11,645) (53,815) (9,981)
Net fund asset = 3,362,523
P P
=2,820,724 = 3,301,919
P P
=2,618,649
*SGVFS027055*
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All equity and debt instruments held have quoted prices in an active market. The remaining plan
assets do not have quoted market prices in active market. The plan assets consist of diverse
investments and is not exposed to any concentration risk.
The principal actuarial assumptions used in determining retirement liability of the Parent Company
and some of its subsidiaries as of January 1, 2017 and 2016 are shown below:
2017 2016
Average Average
Duration Duration of
of Benefit Salary Rate Discount Benefit Salary Rate Discount
Payments Increase Rate Payments Increase Rate
Parent Company 17 7.00% 5.12% 15 7.00% 4.82%
SBCC 18 7.00% 5.23% 14 7.00% 4.68%
SBCIC 16 7.00% 5.10% 15 7.00% 4.80%
SBEI 17 7.00% 5.16% 15 7.00% 4.78%
Discount rates used in computing for the present value of the obligation of the Parent Company and
significant subsidiaries as of December 31, 2017 and 2016 follow:
Parent
Company SBCC SBCIC SBEI SBRC
2017 5.61% 5.22% 5.66% 5.60% 5.70%
2016 5.12% 5.23% 5.10% 5.16% –
The sensitivity analysis as of December 31, 2017 shown below has been determined based on
reasonably possible changes of each significant assumption on the defined benefit obligation as of the
end of the reporting period, assuming all other assumptions were held constant:

Increase Increase
(decrease) Amount (decrease) Amount
Discount rates 1.00% (222,220) 1.00% (199,438)
(1.00%) 261,849 (1.00%) 240,265
Turnover rate 1.00% 35,200 1.00% 38,411

(1.00%) (35,200) (1.00%) (38,411)
Future salary increases 1.00% 254,795 1.00% 233,949

(1.00%) (221,176) (1.00%) (198,543)
Shown below is the maturity analysis of the undiscounted benefit payments:

2017 2016 2017 2016
Less than 1 year =1,003,724
P =894,109
P =994,598
P =884,923
P
More than 1 year to 5 years 776,940 696,437 768,700 652,748
More than 5 years to 10 years 1,835,606 1,660,351 1,811,893 1,542,496
Total =14,984,184
P =13,785,211
P =14,711,549
P =12,680,085
P
There are no reimbursement rights recognized as a separate asset as of December 31, 2017
and 2016. The Group and the Parent Company expect to contribute = P32.6 million in 2018 to its
defined benefit plans.
*SGVFS027055*
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30. Service Charges, Fees and Commissions
This account consists of service charges, fees and commissions on:

2017 2016 2015 2017 2016 2015
Bancassurance =486,389 P
P =387,573 P =551,564 P =486,389 P =387,573 P =551,564
Deposits 440,074 367,888 362,203 440,074 367,888 356,288
Loans 375,294 442,665 293,158 375,294 442,657 285,897
Credit cards 363,344 332,676 253,654 363,343 275,851 184,716
Stock brokerage 234,676 236,774 304,650 – – –
Advisory 170,613 264,672 242,074 – – –
Remittance 14,453 12,256 11,233 14,453 12,256 11,233
Miscellaneous (Note 13) 235,587 128,358 91,091 161,696 100,858 87,747
=2,320,430 =
P P2,172,862 P=2,109,627 P
=1,841,249 P
=1,587,083 P=1,477,445
In 2014, the Parent Company entered into a distribution agreement with FWD for the marketing of
the FWD’s life insurance products through the Parent Company’s marketing and distribution
network. The distribution agreement was approved by the BSP on December 22, 2014 under
Monetary Board Resolution No. 2073, through its letter to the Parent Company dated
January 7, 2015, and the Insurance Commission on January 12, 2015. The term of the distribution
agreement shall not be less than 11 years but no longer than 19 years.
Bancassurance revenues include recognized portion of access fees, commissions and bonuses from
the Bancassurance agreement. The Parent Company will also receive milestone fees and performance
bonuses over the term of the agreement. As of December 31, 2017 and 2016, no milestone fee has
been recognized in the statements of income.
31. Miscellaneous Income and Expenses
Miscellaneous income consists of:

2017 2016 2015 2017 2016 2015
Income from trust operations P
=224,561 P
=213,690 P
=202,676 P
=224,561 P
=213,690 P
=202,678
Recovery on charged-off assets 131,432 150,463 226,521 85,573 123,894 197,019
Dividend income (Note 10) 6,679 11,877 17,062 5,431 10,608 15,541
Gain on sale of Diner’s Club credit
card portfolio (Note 13) − 165,000 − − − −
Miscellaneous (Notes 13 and 15) 54,074 10,874 9,380 37,329 7,053 4,357
P
=416,746 P
=551,904 P
=455,639 P
=352,894 P
=355,245 P
=419,595
Miscellaneous expenses consists of:

2017 2016 2015 2017 2016 2015
Insurance expenses P
=776,198 P
=633,659 P
=538,959 P
=770,469 P
=628,894 P
=529,069
Advertising and publicity 643,284 599,113 450,786 633,621 545,570 417,103
Entertainment, amusement and
recreation (Note 28) 589,790 490,209 742,164 579,653 475,245 732,183
Security, clerical, messengerial and
janitorial services 503,893 478,053 446,507 496,203 462,886 418,276
(Forward)
*SGVFS027055*
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2017 2016 2015 2017 2016 2015
Management and other
professional fees P
=452,686 P
=420,457 P
=279,703 P
=332,966 P
=304,885 P
=157,869
Donations and charitable
contributions 248,425 148,212 81,820 212,125 99,217 33,250
Information technology 210,124 163,309 123,112 210,124 163,309 123,112
Postage, telephone and cables and
telegrams 205,331 194,392 166,486 197,591 157,991 119,535
Banking fees 199,865 153,420 121,264 199,646 152,601 117,074
Stationery and supplies used 124,779 100,291 65,184 121,841 95,894 57,052
Litigation/assets acquired expenses 112,909 103,421 64,587 112,909 103,421 59,542
Brokerage fees 28,724 41,916 55,235 28,724 41,916 55,235
Miscellaneous 591,417 491,136 555,826 499,454 370,548 394,445
=4,687,425 P
P =4,017,588 P
=3,691,633 P
=4,395,326 P
=3,602,377 P
=3,213,745
Miscellaneous expense includes travelling expenses amounting to P =145.5 million, =

P123.2 million,
and =
P125.0 million for the Group and =P143.9 million, =
P123.2 million, and =P94.2 million for the
Parent Company for the years ended December 31, 2017, 2016 and 2015, respectively. It also
includes fuel and lubricants amounting to P
=31.1million, =
P26.8 million, and =P27.6 million for the
Group and =P30.6 million, =
P26.8 million, and =
P26.5 million for the Parent Company for the years
ended December 31, 2017, 2016 and 2015, respectively.
32. Related Party Transactions
Parties are considered to be related if one party has the ability, directly or indirectly, to control the
other party or exercise significant influence over the other party in making financial and operating
decisions. The Group’s related parties include:
∂ key management personnel, close family members of key management personnel and entities
which are controlled, significantly influenced by or for which significant voting power is held by
key management personnel or their close family members,
∂ subsidiaries, joint ventures and their respective subsidiaries,
∂ entities under the same group (other affiliates), and
∂ post-employment benefit plans for the benefit of the Group’s employees.
The Group has several business relationships with related parties. Transactions with such parties are
made in the ordinary course of business and on substantially same terms, including interest and
collateral, as those prevailing at the time for comparable transactions with other parties and are
usually settled in cash. These transactions also did not involve more than the normal risk of
collectability or present other unfavorable conditions.
*SGVFS027055*
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Transactions of the Parent Company with Subsidiaries
December 31, 2017

Amount/ Outstanding
Category Volume Balances Terms and Conditions/ Nature
Loans and receivables P
= 1,149,264 Short-term, unsecured, with interest ranging from 2.75% to
3.5%
Grants 1,102,000
Settlements 449,750
Accrued interest receivable 17,860 5,670 Interest income and accrued interest receivable
Accounts receivable 68,583 On demand, unsecured, non-interest bearing
Dividend receivable 195,000 195,000 Dividends earned
Deposit liabilities 1,910,571 Earns interest at the respective bank deposit rates
Deposits 76,738,347
Withdrawals 77,052,186
Accrued interest payable 702 Interest expense and accrued interest payable
Accounts payable 16,281 On demand, unsecured, non-interest bearing
Rent income 17,841 Lease of office spaces for periods ranging from 1 to 5 years
Rent expense 17,792 Lease of transpo equipment for 3 years
Other Assets 2,358 Security deposits
Other liability 212 Security deposits
Miscellaneous income 522 Trust fees
Commitments - credit facility 8,840,422 Unsecured
December 31, 2016

Amount/ Outstanding
Loans and receivables USD– Short-term, unsecured, 2.5%
Grants 590
Settlements 1,350
Short-term, unsecured, with interest ranging from 2.75% to
Loans and receivables P
=497,014 3.5%
Grants 486,000
Settlements 406,222
Accrued interest receivable 15,003 573 Interest income and accrued interest receivable
Accounts receivable 44,833 On demand, unsecured, non-interest bearing
Deposit liabilities 2,224,410 Earns interest at the respective bank deposit rates
Deposits 161,505,519
Accounts payable 6,442 On demand, unsecured, non-interest bearing
Rent income 17,307 Lease of office spaces for periods ranging from 1 to 5 years
Rent expense 4,014 Lease of transpo equipment for 3 years
Other Assets 2,277 Security deposits
Other liability 847 Security deposits
Dividend income 150,000 Dividends earned
Miscellaneous income 831 Trust fees
Accounts receivable from subsidiaries pertains to expenses paid by the Parent Company, which were
later billed for reimbursement. Accounts payable to SBCC pertains to collections received from
credit cardholders on behalf of the Parent Company.
The Parent Company has lease agreements with some of its subsidiaries for periods ranging from 1 to
5 years. The lease agreements include the share of the subsidiaries in the maintenance of the
building.
The foregoing transactions were eliminated in the consolidated financial statements of the Group.
Other related party transactions conducted in the normal course of business includes the following, as
detailed in the Memorandum of Agreement (MOA) between the Parent Company and its subsidiaries
(except for SBCC):
∂ Human resource-related services

∂ Finance/accounting functions including audit
*SGVFS027055*
- 113 -
∂ Collection services (for legal action)

∂ Preparation of reports
∂ Processing of credit application (for property appraisal and credit information)
∂ General services
∂ Legal documentation
∂ Information technology related service
Expenses allocated to SBFCI, SBCIC, SBEI and SB Rental pertaining to the above services amounted
to =
P36.3 million in 2017, P
=26.6 million in 2016, =P14.6 million in 2015. The Parent Company has not
charged expenses to the other subsidiaries since the levels of their operations remain low.
Transaction of the Group with the Joint Venture
December 31, 2017

Amount/ Outstanding
Receivables purchased P
= 210,432 P
= 808,821 Assignment of rights on a without recourse basis
Collection Fee 2,391 4,279 Collection fee expense and prepaid collection fee,
equivalent to 0.2% of the selling price of the lease
receivables amortized over the lease term
Loans receivable: 627,603 1-month to 5-year term; earns 2.90% to 4.74% interest
Grants 1,537,000
Settlement 1,146,789
Accrued interest receivable 15,668 803 Interest income and accrued interest receivable
Accounts receivable 1,155 2,521 Expenses advanced by the Parent Company and
outstanding accounts payable (on demand, unsecured, non-
interest bearing).
Deposit liabilities: 131,659 Earns interest at the respective bank deposit rates
Deposits 4,291,839
Accrued interest payable 128 Interest expense and accrued interest payable
Rent Income 3,192 Rental income for space occupied by SBML
Refundable Deposits 242 540 Unsecured, non-interest bearing
Commitments - credit facility 602,397 Unsecured
December 31, 2016

Amount/ Outstanding
Receivables purchased P
=310,050 P
=1,292,574 Assignment of rights on a without recourse basis
Collection Fee 2,533 5,647 Collection fee expense and prepaid collection fee,
equivalent to 0.2% of the selling price of the lease
receivables amortized over the lease term
Loans receivable: 237,392 1-month to 5-year term; earns 2.90% to 4.74% interest
Grants 652,500
Settlement 807,414
Accrued interest receivable 131 Interest income and accrued interest receivable
Deposit liabilities: 73,018 Earns interest at the respective bank deposit rates
Deposits 2,787,715
Accrued interest payable 12,385 282 Interest expense and accrued interest payable
Accounts Payable 8,799 1,352 Expenses advanced by the Parent Company and
outstanding accounts payable (on demand, unsecured,
non-interest bearing).
Rent Income 2,554 Rental income for space occupied by SBML
Refundable Deposits 256 Unsecured, non-interest bearing
In 2017, 2016 and 2015, SBML sold various lease receivables to the Parent Company with carrying
amounts of P
=231.6 million, =
P302.1 million and =P660.9 million, respectively, and realized gains
amounting to =
P6.6 million, P
=16.2 million and =
P41.7 million, respectively.
*SGVFS027055*
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The Parent Company’s proportionate share in the gain on sale of lease receivables was eliminated in
the consolidated financial statements of the Group.
Transactions of the Parent Company with Other Affiliates
December 31, 2017

Amount/ Outstanding
Due from other banks USD392 Earns interest at the respective bank deposit rates
Deposits USD26,045
Withdrawals 26,778
Due from other banks JPY62,992 Earns interest at the respective bank deposit rates
Deposits JPY2,207,999
Loans and receivables USD630 Call loans bought
Accounts receivable P
= 375 Unsecured, noninterest bearing
Accrued interest receivable P
= 39,824 P
= 22,546 Interest income and accrued interest receivable
Deposit liabilities USD394 Earns interest at the respective bank deposit rates
Deposits USD680
Withdrawals 602
= 197,665 Earns interest at the respective bank deposit rates
Deposits P
= 15,970,834
Bills payable (USD) USD- 1 – 6 months term; earns 1.08% to 1.70% interest
Availments USD31,400
Payments 71,800
Accrued interest payable P
= 13,255 P
= 29,952 Interest expense and accrued
December 31, 2016

Amount/ Outstanding
Due from other banks USD1,125 Earns interest at the respective bank deposit rates
Deposits USD27,851
Withdrawals 26,804
Deposit liabilities USD316 Earns interest at the respective bank deposit rates
Deposits USD366
Withdrawals 50
=199,539 Earns interest at the respective bank deposit rates
Deposits P
=16,459,378
Bills payable USD40,400 1 – 6 months term; earns 1.08% to 1.70% interest
Availments USD80,600
Payments (40,200)
Accrued interest receivable P
=37,992 P
=11,248 Interest income and accrued interest receivable
Accrued interest payable 62,955 26,218 Interest expense and accrued
Accounts receivable 2 Unsecured, noninterest bearing
Transaction of the Group with another Related Party

As part of the Group’s continuing support for worthwhile education and livelihood projects, it has
made donations to SB Foundation, Inc. (SB Foundation), a non-stock, non-profit organization
registered with the SEC and accredited by the Philippine Council for Non-Governmental
Organization, as follows:
Donor 2017 2016

Parent Company P
=200,000 =83,500
P
SBCIC 17,200 27,000
SBEI 14,900 16,950
Total P
=232,100 =127,450
P
The Parent Company also recognized trust fees amounting to =

P0.5 million both in 2017 and 2016, for
acting as the Investment Manager of SB Foundation’s fund.
*SGVFS027055*
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Transactions of the Group with Key Management Personnel

Key management personnel are those persons having authority and responsibility for planning,
directing and controlling the activities of the Group, directly or indirectly. The Group considers
senior officers to constitute key management personnel.
Consolidated
December 31, 2017
Amount/ Outstanding
= 701,038 Earns interest at respective bank deposit rates
Consolidated
December 31, 2016
Amount/ Outstanding
=353,785 Earns interest at respective bank deposit rates
Parent Company
December 31, 2017
Outstanding
Category Amount/Volume Balances Terms and Conditions/ Nature
= 693,821 Earns interest at respective bank deposit rates
Parent Company
December 31, 2016
Outstanding
Category Amount/Volume Balances Terms and Conditions/ Nature
=327,984 Earns interest at respective bank deposit rates
Compensation of key management personnel follows:

2017 2016 2015 2017 2016 2015
Salaries and other short-term benefits P
= 231,383 P
=234,600 P
=230,037 P
= 196,264 P
=180,926 P
=167,797
Post-employment benefits 14,200 24,161 30,484 12,593 21,485 27,571
P
= 245,583 P
=258,761 P
=260,521 P
= 208,857 P
=202,411 P
=195,368
There are no agreements between the Group and any of its directors and key officers providing for
benefits upon termination of employment, except for such benefits to which they may be entitled
under the Group’s retirement plan.
Transactions of the Group with Retirement Plans

Under PFRS, certain post-employment benefit plans are considered as related parties. The Parent
Company has business relationships with a number of its retirement plans pursuant to which it
provides trust and management services to these plans. Income earned by the Parent Company from
such services amounted to P
=4.2 million and =
P3.9 million in 2017 and 2016, respectively.
As of December 31, 2017 and 2016, the fair values of the plan assets of the Parent Company and
some of its subsidiaries in the retirement funds amounted to P =3.4 billion and =P2.8 billion,
respectively, of which =
P3.4 billion and =P2.6 billion, respectively, pertains to the Parent Company.
*SGVFS027055*
- 116 -
Relevant information on statements of financial position of carrying values of the Parent Company’s
retirement funds:

2017 2016 2017 2016
Debt instruments =1,534,841
P =1,356,946
P =1,484,289
P =1,241,110
P
Equity instruments 1,597,711 783,591 1,593,120 721,055
Investments in Unit Investment
Trust Funds 167,065 423,306 162,398 410,302
Deposits in banks 1,408 183,721 972 173,632
Loans and other receivables 115,415 84,805 114,954 82,531
Total Fund Assets =3,416,440
P =2,832,369
P =3,355,733
P =2,628,630
P
Total Fund Liability =53,917
P =11,645
P =53,815
P =9,981
P
Debt instruments include government and private securities. Deposits in banks of the Group and the
Parent Company include Special Deposit Account placement with BSP amounting to nil in 2017, and
P
=171.6 million and =
P163.1 million in 2016.
The Group’s retirement funds may hold or trade the Parent Company’s shares or securities.
Significant transactions of the retirement fund, particularly with related parties, are approved by the
Trust Investment Committee. A summary of transactions with related party retirement plans follows
(amounts in thousands except number of shares and market value per share):

2017 2016 2017 2016
Dividend income =5,621
P =5,620
P =5,611
P =5,615
P
Interest income 4 – 4 –
Number of Parent Company’s
shares held by plan - common 1,873,640 1,873,080 1,873,640 1,870,400
Number of Parent Company’s
shares held by plan - preferred 2,060,400 2,060,400 2,060,400 2,060,400
Market value per common share 251.40 =190.00
P 251.40 =190.00
P
Voting rights over the Parent Company’s shares are exercised by an authorized trust officer.
In the ordinary course of business, the Parent Company has loan transactions with subsidiaries and
with certain DOSRI. Under the Parent Company’s policies, these loans are made substantially on the
same terms as loans to other individuals and businesses of comparable risks.
On January 31, 2007, BSP Circular No. 560 was issued providing the rules and regulations that shall
govern loans, other credit accommodations and guarantees granted to subsidiaries and affiliates of
banks and quasi-banks. Under the said circular, the total outstanding loans, credit accommodations
and guarantees to each of the bank’s subsidiaries and affiliates shall not exceed 10.00% of the bank’s
net worth, the unsecured portion shall not exceed 5.00% of such net worth. Further, the total
outstanding exposures shall not exceed 20.00% of the net worth of the lending bank. The said
Circular became effective on February 15, 2007.
*SGVFS027055*
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BSP Circular No. 423, dated March 15, 2004 amended the definition of DOSRI accounts. Further,
BSP issued Circular No. 464 dated January 4, 2005 clarifying the definition of DOSRI accounts.
The following table shows information relating to DOSRI accounts of the Parent Company:
2017 2016
Total outstanding DOSRI accounts (in billions) P
=0.343 =0.209
P
Percent of DOSRI accounts granted prior to
effectivity of BSP Circular No. 423 to total loans 0.09 0.07
Percent of DOSRI accounts granted after effectivity
of BSP Circular No. 423 to total loans – –
Percent of DOSRI accounts to total loans 0.09 0.07
Percent of unsecured DOSRI accounts to
total DOSRI loans 7.59 8.69
Percent of past due DOSRI accounts to
total DOSRI loans – –
Percent of nonperforming DOSRI accounts to
total DOSRI loans – –
Total interest income on DOSRI accounts in 2017, 2016 and 2015 amounted to P
=22.1 million,
P
=17.2 million, P=8.0 million, respectively.
33. Long-term Leases
The Group has entered into commercial property leases with various tenants on its investment
property portfolio and part of its bank premises, consisting of the Group’s surplus offices and real
properties acquired. These non-cancellable leases have remaining lease terms of between 1 and 5
years as of December 31, 2017 and 2016. Various lease contracts include escalation clauses, most of
which bear an annual rent increase of 5.0%. Rent income from long-term leases (included in ‘Rent
income’ in the statements of income and Note 13) amounted to P =289.6 million in 2017,
P
=178.1 million in 2016, and =P78.2 million in 2015 for the Group, of which, P =38.5 million in 2017,
P
=48.2 million in 2016, =
P38.3 million in 2015 pertain to the Parent Company.
Future minimum rental receivable under non-cancellable operating leases follow:

2017 2016 2017 2016
Within one year P
=181,929 P
=197,380 P
=18,394 P
=20,111
After one year but not more than five years 106,900 190,292 46,281 38,786
More than five years 10,871 2,822 10,871 2,822
P
=299,700 P
=390,494 P
=75,546 P
=61,719
The Parent Company leases the premises occupied by some of its branches (about 17.51% of the
branch sites are Parent Company-owned). Some of its subsidiaries also lease the premises occupied
by their head offices and most of their branches. The lease contracts are for periods ranging from 1 to
20 years and are renewable at the Parent Company’s option under certain terms and conditions.
Various lease contracts include escalation clauses, most of which bear an annual rent increase of
5.0%. In 2017, 2016 and 2015, rent expense (included in ‘Occupancy costs’ in the statements of
income) amounted to = P653.7 million, =
P547.7 million, and P
=479.1 million, respectively, for the Group,
of which, =
P656.8 million, =
P529.2 million, and =P457.1 million, respectively, pertain to the Parent
Company.
*SGVFS027055*
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Future minimum rental payable under non-cancelable operating leases are as follows:
2017 2016 2017 2016
Within one year P
=438,656 P
=339,974 P
=435,459 P
=338,599
After one year but not more than five years 1,206,054 698,228 1,184,587 691,206
More than five years 52,076 38,998 33,331 31,666
P
=1,696,786 P
=1,077,200 P
=1,653,377 P
=1,061,471
34. Commitments and Contingent Liabilities
In the normal course of operations of the Group, there are outstanding commitments and contingent
liabilities and bank guarantees that are not reflected in the financial statements. The Group does not
anticipate losses that will materially affect its financial position and financial performance as a result
of these transactions.
There are several suits, claims and assessments that remain unsettled. Management believes, based
on the opinion of its legal counsels, that the ultimate outcome of such cases and claims will not have a
material effect on the Group’s financial position and financial performance.
The following is a summary of the Group’s and of the Parent Company’s commitments and
contingent liabilities at their equivalent peso contractual amounts:
2017 2016
Committed loan line =83,859,911
P =56,582,148
P
Trust department accounts 50,193,693 54,287,361
Unused commercial letters of credit 24,836,816 33,527,627
Unutilized credit limit of credit cardholders 13,214,507 8,562,195
Outstanding guarantees 1,220,768 2,170,246
Inward bills for collection 500,300 1,486,466
Outward bills for collection 294,738 369,862
Financial guarantees with commitment 86,477 60,062
Late deposit/payment received 5,539 629,822
35. Segment Information
The Group’s operating businesses are recognized and managed separately according to the nature of
services provided and the different markets served with each segment representing a strategic
business unit.
The Group derives revenues from the following main operating business segments:
Financial Markets Segment - this segment focuses on providing money market, foreign exchange,
financial derivatives, securities distribution, asset management, trust and fiduciary services, as well as
the management of the funding operations for the Group.
Wholesale Banking Segment - this segment addresses the top 1,000 corporate, institutional, and public
sector markets. Services include relationship management, lending and other credit facilities, trade,
cash management, deposit-taking and leasing services provided by the Group. It also provides
structured financing and advisory services relating to debt and equity capital raising, project
financing, and mergers and acquisitions. The Group’s equity brokerage operations are also part of
this segment.
*SGVFS027055*
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Retail Banking Segment - this segment addresses the individual, retail, small-and-medium enterprise
and middle markets. It covers deposit-taking and servicing, commercial and consumer loans, credit
card facilities and bancassurance. The Group includes SBFCI as part of this segment.
All Other Segments - this segment includes but not limited to branch banking and other support
services. Other operations of the Group comprise the operations and financial control groups.
Management monitors the operating results of its business units separately for the purpose of making
decisions about resource allocation and performance assessment. Segment performance is evaluated
based on net income after taxes, which is measured in a manner consistent with PFRS as shown in the
statements of income. This is regularly reported to the Group’s Chief Operating Decision Maker.
The Group’s Chief Operating Decision Maker is the Parent Company’s President and Chief
Executive Officer.
Segment assets are those operating assets that are employed by a segment in its operating activities
and that either directly attributable to the segment or can be allocated to the segment on a reasonable
basis.
Segment liabilities are those operating liabilities that result from the operating activities of a segment
and that either are directly attributable to the segment or can be allocated to the segment on a
reasonable basis.
The Group’s revenue-producing assets are located in the Philippines (i.e., one geographical location),
therefore, geographical segment information is no longer presented.
The Group has no significant customers which contribute 10.0% or more of the consolidated revenue,
net of interest expense.
The segment results include internal transfer pricing adjustments across business units as deemed
appropriate by management. Transactions between segments are conducted at estimated market rates
on an arm’s length basis. Interest is charged/credited to the business units based on a pool rate which
approximates the marginal cost of funds.
Segment information follows (amounts in millions):
December 31, 2017

Financial Wholesale Retail All Other
Markets Banking Banking Segments Total
Statement of Income
Net interest income:
Third party P
= 7,120 P
= 10,200 P
= 2,557 (P
= 491) P
= 19,386
Intersegment (863) (4,001) 1,675 3,189 −
6,257 6,199 4,232 2,698 19,386
Noninterest income 2,593 1,259 1,994 (147) 5,699
Revenue - net of interest expense 8,850 7,458 6,226 2,551 25,085
Noninterest expense 1,421 4,876 3,990 2,847 13,134
Income before income tax 7,429 2,582 2,236 (296) 11,951
Provision for income tax 366 466 321 533 1,686
Net income for the year attributable to the
Parent Company P
= 7,063 P
= 2,116 P
= 1,915 (P
= 829) P
= 10,265
Statement of Financial Position
Total assets P
= 349,633 P
= 338,548 P
= 56,201 P
= 12,427 P
= 756,809
Total liabilities P
= 196,958 P
= 303,344 P
= 133,237 P
= 18,192 P
= 651,731
Other Segment Information
Capital expenditures P
= 13 P
= 380 P
= 738 P
= 429 P
= 1,560
Depreciation and amortization P
=7 P
= 230 P
= 447 P
= 260 P
= 944
Provision for (recovery of) credit and
impairment losses P
=− P
= 538 P
= 653 (P
= 540) P
= 651
*SGVFS027055*
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December 31, 2017

December 31, 2016
Statement of Income
Third party P
=6,296 P
=8,504 P
=1,572 (P
=479) P
=15,893
Intersegment (608) (3,293) 1,533 2,368 −
5,688 5,211 3,105 1,889 15,893
Noninterest income 2,121 1,182 1,847 (212) 4,938
Noninterest expense 1,497 4,701 3,622 1,581 11,401
Income before income tax 6,312 1,692 1,330 96 9,430
Provision for income tax 113 385 221 158 877
Parent Company P
=6,199 P
=1,307 P
=1,109 (P
=62) P
=8,553

Total assets P
=342,382 P
=294,081 P
=45,145 P
=13,374 P
=694,982
Total liabilities P
=204,085 P
=247,582 P
=127,889 P
=18,299 P
=597,855

Capital expenditures P
=16 P
=332 P
=839 P
=497 P
=1,684
Depreciation and amortization =
P6 P
=126 P
=319 P
=189 P
=640
Provision for credit and impairment losses =
P− P
=159 P
=756 P
=29 P
=944
December 31, 2015

Statement of Income
Third party P
=4,990 P
=8,024 (P
=143) (P
=457) P
=12,414
Intersegment (804) (4,244) 3,515 1,533 −
4,186 3,780 3,372 1,076 12,414
Noninterest income 3,214 1,110 1,790 374 6,488
Noninterest expense 929 2,368 5,711 1,123 10,131
Income before income tax 6,471 2,522 (549) 327 8,771
Provision for income tax 165 383 29 439 1,016
Non-controlling interest in net income of
subsidiaries – – – 56 56
Parent Company P
=6,306 P
=2,139 (P
=578) (P
=168) P
=7,699

Total assets P
=246,347 P
=237,052 P
=32,310 P
=16,492 P
=532,201
Total liabilities P
=127,696 P
=127,850 P
=202,335 P
=21,105 P
=478,986

Capital expenditures =
P12 =
P93 P
=572 P
=192 P
=869
Depreciation and amortization =
P7 =
P50 P
=307 P
=201 P
=565
Provision for (recovery of) credit and
impairment losses =
P− (P
=87) P
=516 P
=190 P
=619
*SGVFS027055*
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No operating segments have been aggregated to form the above reportable operating business
segments.
The Group’s share in net income of a joint venture amounting to =

P25.5 million in 2017, P
=21.2 million
in 2016 and P
=22.9 million in 2015 are included under ‘All Other Segments’.
36. Financial Performance
The following basic ratios measure the financial performance of the Group and the Parent Company:

2017 2016 2015 2017 2016 2015
Return on average equity 10.15% 10.37% 15.17% 10.21% 10.38% 15.57%
Return on average assets 1.50% 1.44% 1.73% 1.52% 1.43% 1.75%
Net interest margin 3.20% 3.12% 3.27% 3.20% 3.09% 3.24%
Basic earnings per share amounts were computed as follows (amounts in thousands except earnings
per share and weighted average number of outstanding common shares):
2017 2016 2015

a. Net income attributable to the equity holders
of the Parent Company P
=10,264,797 P
=8,553,545 P
=7,699,327
b. Net income attributable to the equity holders
of the Parent Company - continuing
operations 10,264,797 8,553,545 7,384,740
c. Dividends declared to Preferred Shares 4,259 2,351 2,351
d. Weighted average number of outstanding
common shares 753,538,887 715,861,943 602,831,109
e. Earnings per share[(a-c)/d] =13.62
P P
=11.95 P
=12.77
g. Earnings per share – continuing operations
[(b-c)/d] P
=13.62 P
=11.95 P
=12.25
As of December 31, 2017, 2016 and 2015, the Parent Company has no potentially dilutive common
shares.
37. Notes to the Statements of Cash Flows
The amounts of interbank loans receivables and securities purchased under agreements to resell
considered as cash and cash equivalents follow:
2017 2016
Interbank loans receivable and SPURA P
=5,578,217 P
=–
not considered as cash and cash equivalents 110,430 –
P
=5,688,647 =–
P
Significant non-cash transactions of the Group and the Parent Company include foreclosures of
investment properties and chattels as disclosed in Notes 15 and 16, respectively.
*SGVFS027055*
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Reconciliation of liabilities arising from financing activities follows:
Consolidated
Cashflows Non-cash changes
Foreign Amortization
Beginning Proceeds/ exchange of transaction Ending
Balance Availments Payments movement costs Balance
December 31, 2017
Bills payable and SSURA P
= 210,877,672 P
= 4,583,755,178 P
= 4,600,670,799 P
=– P
=– P
= 193,962,051
Notes payable 14,869,397 – – 62,623 16,382 14,948,402
LTNCD 9,972,738 8,541,289 – – 12,448 18,526,475
Subordinated note 9,944,724 – – – 6,090 9,950,814
P
= 245,664,531 P
= 4,592,296,467 P
= 4,600,670,799 P
= 62,623 P
= 34,920 P
= 237,387,742
December 31, 2016

=150,102,194 P
=5,864,190,350 P
=5,803,414,872 =
P– P
=– =
P210,877,672
Notes payable 14,062,678 – – 795,509 11,210 14,869,397
LTNCD 9,962,290 – – – 10,448 9,972,738
P
=184,066,107 P
=5,864,190,350 P
=5,803,414,872 P
=795,509 P
=27,437 P
=245,664,531
Parent Company
Cashflows Non-cash changes
Foreign Amortization
Beginning Proceeds/ exchange of transaction Ending
Balance Availments Payments movement costs Balance
December 31, 2017
= 210,787,672 P
= 4,583,382,165 P
= 4,600,357,786 P
=– P
=– P
= 193,812,051
Notes payable 14,869,397 – – 62,623 16,382 14,948,402
LTNCD 9,972,738 8,541,289 – – 12,448 18,526,475
P
= 245,574,531 P
= 4,591,923,454 P
= 4,600,357,786 P
= 62,623 P
= 34,920 P
= 237,237,742
December 31, 2016

=150,102,194 P
=5,864,100,350 P
=5,803,414,872 =
P– P
=– =
P210,787,672
Notes payable 14,062,678 – – 795,509 11,210 14,869,397
LTNCD 9,962,290 – – – 10,448 9,972,738
Subordinated note 9,938,945 – – 5,779 9,944,724
P
=184,066,107 P
=5,864,100,350 P
=5,803,414,872 P
=795,509 P
=27,437 P
=245,574,531
38. Events after the Reporting Period
On January 19, 2018, the Parent Company participated in the Republic of the Philippines’ cash tender
program and submitted its holdings of eligible ROP bonds classified as FVOCI securities with face
value of USD128.6 million (P=6.6 billion).
The Parent Company’s BOD, in its meeting held on February 27, 2018, approved the declaration of
first annual cash dividend of P
=0.004805 per preferred share, representing 4.805% of par value,
equivalent to the 10-year PDST-R2 on the issue date of the second tranche of preferred shares,
payable on April 2, 2018 to preferred stockholders of record March 14, 2018. The declaration is in
accordance with the terms and conditions of the Parent Company’s preferred shares.
The Parent Company’s BOD, in its meeting held on February 27, 2018, approved the declaration of
second annual cash dividend of P =0.0039 per preferred share, representing 3.90% of par value,
equivalent to the 10-year PDST-R2 on the issue date of the first tranche of preferred shares, payable
on July 10, 2018 to preferred stockholders of record June 26, 2018. The declaration is in accordance
with the terms and conditions of the Parent Company’s preferred shares.
*SGVFS027055*
- 123 -
39. Approval of the Release of the Financial Statements
The BOD of the Parent Company reviewed and approved the release of the accompanying
consolidated and parent company financial statements on February 27, 2018.
40. Supplementary Information Required Under Revenue Regulation No. 15-2010
On November 25, 2010, the BIR issued Revenue Regulation (RR) No. 15-2010 to amend certain
provisions of RR No. 21-2002. The Regulations provide that starting 2010, the notes to financial
statements shall include information on taxes and licenses paid or accrued during the taxable year.
In compliance with the requirements set forth by RR No. 15-2010, hereunder are the information on
taxes, duties and license fees paid or accrued during the calendar year ended December 31, 2017:
Gross receipt tax (GRT)

The Parent Company is subject to GRT on its gross income from Philippine sources. GRT is imposed
on interest, fees and commissions from lending activities at 5.0% or 1.0%, depending on the loan
term, and at 7.0% on non-lending fees and commissions, trading and foreign exchange gains and
other items constituting gross income.
In FCDU, income classified under Others, which is subject to corporate income tax, is also subject to
GRT at 7.0%.
The details of the Parent Company’s GRT payments and corresponding GRT tax base in 2017 are as
follows:
GRT GRT tax base

Income from lending activities =630,338
P =19,746,328
P
Other income 256,268 3,660,977
=886,606
P =23,407,305
P
Taxes and Licenses

This includes all other taxes, local and national, incurred in 2017 and lodged under ‘Taxes and
licenses’ in the statements of income, as follows:
Amount
Documentary stamp taxes P519,299
=
Fringe benefit taxes 36,123
Mayor’s permit 31,245
Real estate taxes 15,057
Other taxes 34,970
=636,694
P
Other taxes include car registration fees, privilege taxes and other permits.
*SGVFS027055*
- 124 -
Withholding Taxes
Details of total remittances in 2017 and balances as of December 31, 2017 are as follows:
Total
Remittance Balance
Withholding taxes on compensation and benefits =712,059
P P67,123
=
Expanded withholding taxes 190,433 22,297
Final withholding taxes 1,049,158 102,071
=1,951,650
P =191,491
P
Tax Assessments and Cases

As of December 31, 2017, the Parent Company has no deficiency tax assessments and has no tax
cases, litigation and/or prosecution in courts or bodies outside the BIR.
*SGVFS027055*

Security Bank Audited Financial Statements 2017

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Security Bank Audited Financial Statements 2017

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Security Bank Corporation and

Independent Auditor’s Report

INDEPENDENT AUDITOR’S REPORT

The Stockholders and the Board of Directors

Basis for Opinion

Key Audit Matters

Adequacy of Allowance for Credit Losses on Loans and Receivables

Applicable to the Audit of the Parent Company Financial Statements

Accounting for Hold-to-Collect (HTC) Securities

Report on the Supplementary Information Required Under Revenue Regulations 15-2010

SYCIP GORRES VELAYO & CO.

February 27, 2018

Consolidated Parent Company

LIABILITIES AND EQUITY

Consolidated Parent Company

EQUITY ATTRIBUTABLE TO EQUITY

TOTAL EQUITY 105,078,429 97,126,918 105,145,282 97,155,844

TOTAL LIABILITIES AND EQUITY P

See accompanying Notes to Financial Statements.

Consolidated Parent Company

NET INTEREST INCOME 19,385,876 15,893,446 12,398,674 19,321,830 15,781,399 12,091,769

TOTAL OPERATING INCOME 25,085,100 20,831,801 18,308,997 24,410,582 20,002,208 17,418,189

TOTAL OPERATING EXPENSES 13,133,855 11,400,926 10,006,907 12,473,971 10,609,084 9,095,761

Consolidated Parent Company

NET INCOME FROM CONTINUING

Basic/Diluted Earnings Per Share (Note 36) P

Basic/Diluted Earnings Per Share - Continuing

Basic/Diluted Earnings Per Share -

See accompanying Notes to Financial Statements.

Consolidated Parent Company

NET INCOME FOR THE YEAR P

OTHER COMPREHENSIVE INCOME

OTHER COMPREHENSIVE INCOME

TOTAL COMPREHENSIVE INCOME P

See accompanying Notes to Financial Statements.

Balance at January 1, 2017 P

Balance at January 1, 2016 =

Balance at January 1, 2015 P

Balance at January 1, 2017 P

Balance at January 1, 2016 P

Balance at January 1, 2015 P

Consolidated Parent Company

Consolidated Parent Company

CASH FLOWS FROM FINANCING

NET INCREASE (DECREASE)

CASH AND CASH EQUIVALENTS

Consolidated Parent Company

OPERATIONAL CASH FLOWS FROM

See accompanying Notes to Financial Statements.

The Parent Company is the Ultimate Parent Company of the Group.

2. Summary of Significant Accounting Policies

∂ derecognizes the assets (including goodwill) and liabilities of the subsidiary;

Non-controlling interests are presented separately in the consolidated statement of income,

Changes in Accounting Policies

Amendments toPhilippine Accounting Standards (PAS) 7, Statement of Cash Flows, Disclosure

Fair Value Measurement

Financial Instruments - Initial Recognition and Subsequent Measurement

Initial recognition of financial instruments

Classification and Measurement of Financial Assets

Financial assets at amortized cost

Financial assets at FVTPL

A financial asset is held for trading if:

Financial assets at FVTOCI

Reclassification of financial assets